References to financial wellness are everywhere these days – from your workplace retirement plan updates to self-help books and personal finance media.
It’s a hot topic as people look beyond their retirement funds to consider a range of financial health issues, from mental health and work-life balance to emergency funds and cash management.
What exactly constitutes financial well-being
, and how to achieve it? The US Consumer Financial Protection Bureau defines financial well-being as “a condition in which a person can fully meet current and continuing financial obligations, can feel secure about their financial future, and is able to make choices that allow him to enjoy life. Generally speaking, the quest for financial well-being begins with setting specific financial goals.
Contributed / Metro Newspaper Service
10 steps to financial well-being
Goals should be achievable and may include one or more of the following 10 steps to financial well-being:
- Increase your financial literacy. Read blogs or books on financial matters or sign up for an educational seminar or webinar. Your local public library can be a great resource. While much of the content written these days is specifically aimed at specific audiences such as Millennials or Gen Xers, much of it is more general in nature. Listen to podcasts. Our firm offers a wealth of resources on the Insights page of our website,
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- Create a net worth statement. On a piece of paper, write down all the assets you own (e.g. your home, stocks, bonds, money, personal property) and subtract from that number anything you owe (e.g. mortgages in courses, lines of credit, car or university loans, and so on). This gives you a good picture of your household’s net worth, a very useful financial planning tool. Be sure to do this every year to see if your net worth increases or decreases.
- Track your expenses. Before you can even set a budget, you need to have a clear idea of where your money is going each month. Use a notebook or money tracking app and record what you spend each day in the “to spend” and “nice to spend” categories. Often your bank or brokerage will have an app that pulls up all the different wires of your expenses and can help you set up a monthly budget.
- Reduce unnecessary expenses. If you’re not getting the most out of the products and services you buy every week, it might be time to cut back on exotic coffee, video streaming services, or cable services. But don’t cut all the fun things out of your life! Balance is key, so when you want to splurge on something you really love, you won’t feel regret or guilt about it.
- Increase retirement savings contributions. Consider increasing your contributions each year with each increase you receive, or at least enough to qualify for the employer match. The tax code allows you to make catch-up contributions to your 401(k) or IRA after age 50. That said, be careful not to put too much money in these accounts, which could cost you a big tax bill. road. It’s always a good idea to speak with a financial advisor to see how increasing your savings applies to your personal situation.
- Pay the bills. Reduce what you owe by paying off your loans, credit cards, and other debts (especially those that carry high interest rates). I know this sounds stubborn, but you shouldn’t take on more debt than you can comfortably handle. Look for the best deal before taking out a loan and avoid carrying a balance on your credit cards if possible.
- Set up or add to an emergency fund. Save at least six months of living expenses, especially if your job isn’t secure, or if there’s a risk of disability in your family, or if you have an unexpected car or repair at home. You don’t need an instant emergency fund from day one — start small and build up over time. And keep that emergency cash in relatively safe and liquid funds. You can always transfer any excess emergency savings to your “long-term” investment account.
- Check your credit report or score. Your score influences your ability to qualify for credit and the terms of that credit, so even if you always pay your bills on time, it’s important to check your scores periodically. Plus, with the rise in cases of identity theft and credit card fraud, you can’t be too careful. If you discover errors, contact the rating agencies and dispute anything that is wrong. (You can check your credit score for free once a year with major credit rating agencies; visit AnnualCreditReport.com or call 1-877-322-8228.)
- Review your asset allocation. At least once a year, talk to your advisor to determine if your benefits are still meeting your goals. Be honest about your expectations, especially when inflation is high and markets have been volatile. Even if you’re managing your own money, you should do a self-assessment to find out if your allocation (and your risk budget) is still appropriate.
- Work with a financial advisor. Achieving financial wellness is a complex undertaking, especially if you have a lot of assets and/or sources of income, have a child with special needs, or have a complex tax situation. Having an advisor in your area can be a big help in these situations. And while you enjoy managing most of your financial decisions, having someone to challenge your assumptions and provide a second opinion can be invaluable.
This list may seem daunting, but you don’t have to do it all at once. Choose one or two financial wellness goals and work on them at your own pace. Soon you will develop confidence in your ability to achieve the financial success you have always dreamed of.
The opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations to any individual.
Source: Consumer Financial Protection Bureau, “Resources for Financial Wellness”, consumerfinance.com.