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.
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.
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, prepare 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.
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.
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.
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.