7 Tips to Achieve Financial Wellness
tips to achieve financial wellness
According to this 2019 study from the American Institute of Stress, 62% of Americans feel stressed about money on a regular basis. Financial wellness should be an important part of our everyday lives.
According to the CFPB, financial wellness is defined as:
“A state of being wherein you have control over day-to-day, month-to-month finances; have the capacity to absorb a financial shock; are on track to meet your financial goals; and have the financial freedom to make the choices that allow you to enjoy life.”
Financial well being applies all the time and in any circumstance. This includes how well you’re able to stay on top of your financial obligations, how secure you feel about your financial future, and ultimately whether you have the freedom to make financial choices that allow you to enjoy your life. The sooner you are prepared, the better. But anytime you start is better than not starting at all!
In this article, we’ll share 7 wellness tips for your finances that will help you stay financially healthy. But remember that everyone’s financial situation is different, so it is up to you to select the proper mix of resources that work best according to your needs.
1. Reliable income
Making money is definitely the cornerstone of financial wellness and increasing your income can help you obtain your goals. You do not need to be a millionaire, but it's important to obtain some level of income stability. Being financially well starts with having a reliable income and knowing at a consistent time, you will expect to be paid a certain amount. Steady and reliable income is one of the cornerstones of financial wellness.
Even as your earnings increase, try to live off a set income level and add to your investments. Allowing your interest-earning accounts to grow will help you offset any downturns or emergency expenses. You have a steady and reliable income when you know when your next few months’ of paychecks will arrive and approximately how much money they’ll contain.
Do you know where your money is going each month?
Even if you don’t like budgeting or planning, it’s good to set goals for yourself. You are more likely to stick with it when you have goals to reach and can see progress. By creating a plan, you are visualizing the what, why, and how you will get there. If you don’t already have a household budget, grab your most recent bank statement and look at the total amount of money you have coming into your household each month. Then, factor in fixed, required expenses - things like rent or mortgage payments, utilities, insurance, and more. With the money you have left over, assign a category to each dollar for flexible expenses. For example, if you love to try out new restaurants, you may want to budget $100 a month for eating out. Don’t forget to budget in a monthly contribution to an emergency fund if you don’t already have one.
Write your bill due dates on a calendar. If you have trouble making ends meet at the end of the month, the timing of your income and expenses may be off. It’s often helpful to see the full picture. Write down the due dates for your bills on a printed calendar that you can look at regularly as you plan for the weeks ahead.
Once you’ve made your budget, try your best to stick with it. Pay yourself first and save money as soon as you get your paycheck. If you overspend in one category, don’t be afraid to move money from another to cover your expenses. At the end of the month, you can reevaluate your budget if you had a hard time following it. Your goal is to develop a budget based on your monthly income, expenses, and savings, and then live within your means.
3. Emergency Fund
If you do not have an emergency fund, now is the time to start building it. The goal of an emergency fund is to have available funds for when you are dealing with unemployment or you have an unforeseen cost. You won’t stress about the money because you have a nice cash reserve that you can access quickly. Finance experts often say that you should have at least three to six months’ worth of expenses in your emergency fund. If you have nothing in savings, putting away just $25, $50, or $100 a month is an amazing start. Ultimately, it’s what you feel comfortable with. You can also consider putting it in a high savings investment such as CIT Bank’s Savings Builder, which helps put your savings to work with very little risk.
4. Build Your Savings
Once you get a handle on your finances, you can start to map out life events and large purchases, so you can begin saving! Planning ahead is always helpful, and once you get a handle on your current financial plan, set some goals for what comes next. By building a plan, you have a road map to help guide you through the rest of your story.
Putting even a small amount into savings on a consistent basis is one of the best ways to get your savings to grow so you can meet your goals, small or large. Set your own personal savings rule to live by and make a plan on how to achieve it. Prepare for life events and large purchases by planning ahead.
See if your company has an automatic savings program. Contribute at least enough to qualify for matching funds, if offered.
It’s also a great idea to make savings easy by making them automatic. Whether it’s through your bank or employer, there are a number of ways to have money automatically transferred into your savings every week or month. Recurring transfers are considered one of the most effective ways to build your savings.
Many experts suggest putting at least 10% of your income into savings - and some recommend as much as 25%. Sound too hard? Start with one percent of your paycheck and increase as your salary grows. Saving money might feel out of reach at times, but consistently putting away even small amounts of money can make a big impact over time. Check out our tips for making saving a part of your everyday routine, and then watch it grow.
5. Understanding Credit
Your credit score is another critical part of your financial health. Things like late payments, too much debt or high balances negatively affect your credit score. Keep watch over your credit report and credit score with a free credit report from places like Credit Karma. A higher credit score tells banks and lenders that you’re a reliable and less risky borrower.
The idea of having good credit is key to how well you live. It determines things like your interest rate, mortgage rate, if you’ll get approved for any loans, and even down to being able to apply for credit cards.
Depending on your current credit, you may want to find ways to fix any credit report errors or boost your score. Total financial wellness means understanding exactly how much money you owe and to whom you owe it, as well as what your interest rates are on each loan. It also means creating an actionable plan to pay off your debt - and putting that plan into action by making payments each month.
6. Reduce Debt
Paying down debt can seem scary or tough, but with some proven strategies, you can make it happen, bit by bit. Our tips for reducing debt can help you find the right methods to trim your debt into something that feels manageable.
Before making a plan to pay down your debts, know what you owe. You can use this debt log to get a sense of the amount of debt you owe, including interest rate and projected payoff date, and who you owe it to. There are two common strategies to pay down your debt: the highest interest-rate method and the snowball method. In the highest interest-rate method, you pay extra money toward the one debt with the highest interest rate. With the debt snowball method, you pay down the smallest debt first and work your way up, regardless of the interest rate. You can learn more differences and pick the one that works best for you here.
7. Retirement Planning
Retirement planning and investing knowledge is important to financial security. Are you saving for retirement and contributing money for your future? The earlier you begin, the more compound interest goes to work for you in your future. Understanding the basics, how 401k’s work or IRA’s, and setting a plan to contribute money towards this will ensure you are financially well into retirement age. If you can’t afford to invest in a 401k you can use an app like Acorns that lets you invest in fractional shares and with spare change. It helps you set the foundation for financial wellness and gets you thinking like an investor.
Besides the info and advice above, you may want to further your financial education and ensure you are on a better path. Here are some additional places for learning about finances:
Again, your finances and what may be important to you will vary. But, the above are the basics of financial wellness that essentially everyone will have some focus on at some point. Financial wellness doesn’t happen overnight. You need to take constant, intentional steps toward your financial goals to slowly work your way toward a total picture of wellness. Everyone’s situation is different and only you know which tips will work best for you and will help you reach your financial goals for your specific case. Are you ready to get started on the path toward a better financial future? Check out the Meratas blog to learn more!