Many people want to have more control over their finances and spend less time worrying about money. For the majority of us, however, this doesn’t just happen overnight. Financial wellness is an ongoing process with many facets that need regular attention.
Real wellbeing is more than simply a catchy brand tagline for Instagram. The discipline of treating your mind and body with care, which includes feeding, moving, and relaxing them, is fundamental to maintaining a higher quality of life. No matter what the upscale skincare or vitamin company attempts to convince you of (or sell you), it’s for everyone.
However, we don’t often discuss how crucial it is to handle our money with the same level of care. Financial wellness is the idea that you’re more likely to feel confident about where you are and where you’re going — your quality of life increases — when you have control over your money, know what to do next to accomplish your goals, do those things, and routinely engage in responsible financial behavior (aka financial self-care). Because it’s just as crucial to your overall well-being, let’s call it that.
In this blog post, we’re going to provide a step-by-step guide on how you can achieve financial wellness at whatever point you are in your life.
What is financial wellness?
Financial wellness is fundamentally the condition of (money-related) well-being that is attained and sustained when you are aware of what you have, aware of where you’re going (and take efforts to get there), and satisfied with your situation.
No matter where you are in your financial journey or how much money you have (or don’t have), everyone can get there. Financial wellness is a discipline that everyone may adopt and achieve if they want to feel confident and in control of their finances.
1. Start By Setting A Budget
Many people struggle with their finances because they don’t know how to control their money. To pay off debt and save for the future, you must set a budget to track your spending habits.
You can start by going through all of your accounts (i.e., checking/savings, investments) and recording how much is in each of them. Then, make your pay stubs and list out your income. For self-employed people, list the amount you would be making if your business was profitable on average for the last 12 months of operations.
Add up all of the money you have coming in and calculate your monthly living expenses such as rent, utilities, groceries, along with any extra costs. You can even generate invoices or other financial documents online that could help you manage your budget. Then, subtract the total monthly payments from the income to see how much you have left every month.
If your monthly living expenses are close to or more than what you’re earning, then you may need to cut back on your spending. For example, consider shopping for groceries once a week instead of twice, cooking at home more often, or reducing the money you spend on entertainment.
When it comes to spending too much, many people really only have a number of trouble areas. Perhaps it has to do with shopping or electronics. Once you are aware of your regular spending patterns across many categories, try setting up a budget that is 15–25% lower. When cutting back on spending, it’s a good idea to start small since if you try to do it too quickly and drastically, you can become frustrated and find it difficult to continue with it.
Making a monthly spending plan and following it will help you determine how long it will take to reach your savings objectives, where you can make cuts if necessary, and where you can spend a little more if you have extra money.
Once you have significantly reduced your costs, you can start setting aside money to pay off debt or make an investment.
2. Create An Emergency Fund To Protect Against Sudden Financial Emergencies
The next step in achieving financial wellness is to create an emergency fund. You should set aside at least three months of living expenses so that you can cover emergencies like the car breaking down, a sudden illness or injury occurring, or unemployment.
A $10,000 emergency fund will go a long way in cushioning against financial emergencies. If you have an irregular income or no job stability, it could be wise to set aside up to six months of living expenses for your emergency fund.
3. Save For Retirement
Many people look forward to retirement, but few save for it. Of course, it’s essential to pay off any debt you have now and focus on settling your bills on time each month. However, you should also plan for the future so you can have enough money saved for the time when your paychecks stop coming in.
Remember that the earlier you start saving for retirement, the more time it has to grow and earn interest or other dividends over the years. If you want to maximize retirement fund returns and are willing to make sacrifices now, consider adding long-term investments like stocks or mutual funds that may exceed your goals.
4. Pay Off Debt And Create A Plan To Avoid It In The Future
It’s crucial to pay off any debt you have now so that you won’t have to worry about it in the future. One of the best ways to do that is by creating a debt repayment plan. A financial advisor can help you figure out how much money you should be paying towards your bill each month, so consider calling one and ask for their assistance.
Remember that the key is finding an approach that works for your needs. Find something that’s realistic and one that you can achieve.
Create a repayment strategy
The average American has roughly $6,000 in credit card debt, and many others have student loan debt that is in the thousands of dollars, making it harder to have financial wellness. It can take years and thousands of dollars in additional financing charges if you only make the minimum payment on your debt, according to a loan calculator with an amortization plan.
It’s crucial to create a plan rather than just paying the bare minimum and hoping for the best. Making a budget and spending plan, setting up an autopay (that’s greater than the minimum! ), and allocating a portion of each paycheck to debt repayment are all practical steps you can take right now to get out of debt quickly.
5. Stay On Top Of Your Taxes
It is essential to pay attention and stay on top of your taxes each year. Take the time to get a head start so that you’re not scrambling when tax season comes. Inattention can result in penalties if you are filing late or still owing back refunds from previous years.
Stay up-to-date with changes to tax laws by checking out news sources like the Wall Street Journal or pay attention to notices from your employer.
It’s a fantastic idea to contribute a portion of your monthly income to your employer’s 401k plan, if one is available. Some 401(k)s even offer employer matching, which means that your employer will contribute some more funds when you do, up to a certain amount. That’s a lot, and you should absolutely think about raising your payments to at least match the match in some cases.
You still have possibilities if you don’t have full-time work with benefits. IRAs are retirement accounts that you can open on your own, without the assistance of an employer. You have a ton of options when shopping around because banks, credit unions, and financial firms frequently let you start an IRA at a minimal cost.
In either scenario, making contributions to a retirement account can aid in long-term asset growth and achieving financial wellness. Therefore, investing in your retirement is a smart move, regardless of how early in your career you may be. Then, compound interest can work to your advantage.
6. Invest Wisely, Taking Into Consideration Risk Tolerance And Time Horizon
Investing is a process that can be intimidating because you are committing to pay for investment until it matures. There are also many things to consider before investing. For example, what range between gains and losses are you willing to accept? How long do you want to have those investments in place for financial goals?
The longer the term of an investment, the more it will pay off in the long run, but of course, there could be a greater risk because of the higher possibility for fluctuations to happen.