The term financial health refers to the state of a person’s or company’s finances. It means minimal or no debts, sound investment goals, compliance with government regulation and a diversified income base able to cater for a well regulated expenditure. So does your financial health affect your physical and psychological health?

When your finances are well organized, you will be happier. A research by Pew Research Center indicates that good health goes hand in hand with your happiness and that money is closely related with happiness. Happiness contributes at least 70% of our wellbeing. I am more bound to be sick when I am sad or anxious. Medics realized this earlier and came up with a solution for it, they call it a placebo.

The placebo effect was first discussed by Henry K. Beecher in his book ‘The powerful placebo’ in 1955. It is simply defined as a sham medical intervention. A doctor gives you ‘ineffective drugs’ to make you feel better when you go to the hospital claiming to be sick yet you are not. Most patients on placebo drugs have stress related problems. Like it or not, your financial health determines your personal health.

It can be stressful when the figures don’t add up; bills can’t be paid and you are haunted by images of the neighbor's property you saw being auctioned. One thing leads to another and ulcers creep in. Can all this embarrassment be avoided?  Taking charge and managing finances effectively can avert this scenario. In fact, doctors ought to add sound financial management as a better way of preventing ulcers!

Your personal finance comprises of  five major sections: debt management, income, expenditure, savings and investment and taxation. These elements of personal finance are catered for by a process known as financial planning.

Financial planning offers practical steps on how one can plan and manage their finances more responsibly. Steps are assessment, goal setting, planning, implementation and review.  Just as the government sets their financial plan every year citing, goals, appropriations and strategies, so should one do with their finances. 

Individually or as a family, you should assess your financial situation by drawing a balance sheet, income statement and the expense account. This will help you know your net-worth, debt burden and cash flow. Secondly, you ought to come up with realistic goals that you want to achieve within a given period. These can be a house, a car, a piece of land, a holiday or a degree course. This provides a target for one to aim at. Thirdly, a plan must be drawn to achieve the set goals. The plan will include the goals, objectives, strategy and action plans. The action plans will include developing a portfolio, identifying a piece of land, or starting up a side business to diversify income. Fourthly, the plan will have to be implemented. The action plans will be put to work in an effort to achieve the objectives and attain the goals.

Finally, there should be periodic reviews to see if the plan is working and at what speed. If for instance there is need to change strategy, this will be the point to decide so or otherwise. It is important to talk to professionals, gather information and learn more while at the review point. A financial plan will definitely make your days more exciting as you strive to make it work. Simply put, it will make you work smart.

A lot of people have left their finances on auto-pilot. If you cannot say your net-worth, establish your debt burden or tell your monthly fixed costs without asking for some time to think, you probably are in this category. The only problem with auto pilot is that when there is a small turbulence you will not be able to stay afloat. Leaving your finances to chance is like walking barefoot without minding the worms, nails,  insects or injuries you are risking your foot to. As you take care of your body, so you should care for your wealth.

The investment options for one with a plan are many. Unit trusts, venture capital, stock options and government securities are all examples of investment avenues available for one to consider. The time factor of investment must also be considered. Any financial goal or plan must have a time aspect to them. There are objectives that can be attained in the short run then there are those that can only be achieved in the long run. All in all, good ideas are like good pens, they get lost. It is thus important to write down your plan comprehensively including the fine details.

Finally, one's financial health is a clear image of his physical health. I like to think of the two as identical twins. One’s income is like food that is taken in. it must be balanced and from different sources. This depicts the need for diversification in income. Expenditure is like waste disposal; you plan to do it well at the right time and place. Please don’t go wasting it! Please do not over indulge, otherwise you will find it difficult to fight heart attack. Investment is like work or exercise. As hard and disinteresting as it seems, it makes your future less risky. It also reduces your need to see a doctor. Finally my favorite, the tax burden is like marital responsibility. Fail to pay it and you will have problems characterized by anxiety, insecurity and fear.

By William Odhiambo

Managing Consultant, Elim Consulting,

Nairobi.