5 Tips for Financial Wellness
Last updated on : August 06 2020
Just like any other area of your life, appropriately managing your money is a crucial part of your overall wellbeing. In an age where nearly three-quarters of Americans feel stressed about money, conquering your fear of finances and financial planning can help you live a happier and healthier lifestyle.
But if you’ve never actively worked toward boosting your finances, figuring out how to get started can feel daunting. Especially for those who feel buried in their debts or aren’t sure how to limit their spending, the road to financial wellness can be long and full of dangers.
Regardless of your current financial situation, there are a few universal best practices to keep in mind that will help you make money management a regular activity in your daily wellness routine.
Here are our five best tips for achieving financial wellness:
Create a plan for tackling debt
Anyone who cares enough to read an article about financial wellness probably already understands that accumulating personal debt is generally not considered to be a good thing.
However, life tends to make avoiding debt difficult or seemingly impossible, whether it comes in the form of student loans or credit card bills for essential purchases. Perhaps this explains why the average American carries $6,200 in credit card payments and why escaping debt feels like scaling a slippery slope.
Regardless of how much debt you’re currently saddled with, start your debt elimination process by creating a personal plan of attack. The most crucial part of any debt reduction strategy is that it works for you and intrinsically motivates you to accomplish your personal goals.
In terms of reducing your debt, there are two primary schools of thought when creating your plan of action: the debt avalanchers and the debt snowballers. Simply put, those who practice the debt avalanche method contribute payments beyond their minimum to the loan with the highest interest rate. Alternatively, debt snowballing focuses your extra payments on the smallest loan first, regardless of the interest rate.
So which one is the better strategy for you? That depends on which method feels like the better motivator for you.
Debt avalanchers are generally better at looking toward the long term; focusing on the most considerable obstacles first allows them to potentially lower their payments over time despite there being fewer “small wins” along the way. Debt snowballers tend to be people who are energized by more consistent successes along the way; diverting their attention to their more feasible loans helps them preserve energy and minimize feeling discouraged or burned out along the way.
Regardless of how you create your debt strategy, either of these methods will get you closer to where you need to be and help you achieve a debt-free way of life.
Consolidate your debts
Similar to our last tip, debt consolidation is a useful tool that you can use to lower your monthly payments and reduce the time to debt-payoff, all while streamlining several loans into a single monthly payment.
For those unaware, debt consolidation is the practice of combining debts from multiple loan sources by taking out a single loan to pay them all off. Financially savvy consolidation aims to pay off your existing debt at a much lower interest rate and monthly minimum payment.
Debt consolidation a particularly enticing option for those who have struggled in the past to pay off their many high-interest bills—including everything from late credit card payments to private student loans.
There are a few different pathways to consider and learn more about if consolidating sounds like a good fit for you. Home equity loans work by letting lenders borrow against the equity they’ve built up in their homes. They typically offer lower interest rates and deliver your money in a lump sum, making them a good fit for debt consolidation efforts.
Another popular option for merging your debts is taking out a personal loan, which allows you to borrow a designated amount of cash to repay over an agreed-upon timeframe. Unlike a home equity loan, personal loans are an unsecured form of repayment, because you provide no underlying assets, such as your home, to secure them.
By simplifying your debt repayment plan on a month-to-month basis, you’ll not only find it easier to organize and manage your expenses but might also have the opportunity to save money in the long run.
Prepare for emergencies
Weathering any financial storms that may come your way becomes infinitely more manageable with the right emergency measures in place. Yet despite this, the average American in their 20s has saved a little less than $4000. Which is typically is not enough cash on hand in the event of a crisis.
A savings account is not the best place to grow your wealth or secure new investments. But having accessible cash on hand is essential to ensuring that you continue to meet your needs in the case of a layoff, medical emergency, or any other unexpected situations as they arise.
So the real question when it comes to saving is not whether you should be but instead how much. Although the numbers vary, a reasonable estimate to get you started is the 50/30/20 rule, which cuts your income into 50% spent on your needs, 30% spent on your wants, and a final 20% dedicated to your piggy bank.
For many people looking to further their financial well being, however, understanding how much to save requires a much more nuanced perspective than a simple percentage. Many experts agree that the amount in your savings account should depend on several factors—everything from your age and work experience to the number of dependants in your household and your annual salary.
In many ways, the events of this past year have only further confounded the question of just how much you should save. Previously, many financial experts settled between three to six months of living expenses to have tucked away in case of emergencies. But the uncertainty of the world in the first half of this year may make upwards of twelve months in expense coverage the new normal.
If you’re not in the habit of saving regularly, it’s not realistic to dedicate an entire paycheck or a huge lump of cash to be shipped off to the bank, so instead focus on creating a manageable savings goal for each paycheck and signing up for automatic withdrawals.
Automating the savings process reduces any temptations you might have to keep this money in your checking account (where you’re more likely to spend it) while simultaneously removing the headache of tracking how much you’re dedicating to your emergency funds.
Once you’ve taken out your debts and fortified your savings, it’s time to think about how you can start making your money work for you. Investing is the process of collecting your current resources and leveraging them to generate another stream of income.
Investing is a crucial step in the financial wellness cycle. It can drastically decrease any stresses you have on keeping your income, as you will no longer be entirely dependent on a single salary or wage to provide for yourself and your loved ones.
For many people, the first image that comes to mind when they think about investing is investing in the stock market. Historically, investing stocks in publicly traded companies has been—for the most part—an effective method for growing your wealth, especially over a long period. However, for the 42% of people who feel like they don’t have the necessary funds to invest in the market, the stock market might appear cryptic and intimidating.
That’s why it’s important to remember that there is no one path to investing in your future wellness and that sound investing reaches far beyond a stock ticker.
Similar to cultivating your savings habits on a more manageable scale, you’ll find that there are plenty of investment opportunities, large and small, to use to your benefit. These opportunities could include enrolling in your employer’s retirement matching plan, housing your money in a few mutual funds, or even putting your resources toward a new property for rentals or leasing.
Budget for yourself
Finance wellness 101 tells us that we need to have a budget in place to guarantee that the money leaving your wallet never exceeds the amount going into your bank accounts. But for the sake of your happiness and overall well being, remember that the budget you create has to be one that works for you.
When people who are not used to tracking their money and developing limits around their spending hear the word “budget,” they often imagine life without new clothes, dinners at restaurants, and other leisure activities—when in reality, the very opposite is true. In fact, some of the very best budget gurus encourage allocating up to 10% of your monthly income for leisure activities.
A budget does mean that you should avoid unnecessary or unplanned spending, but it does not mean that this comes at the cost of your quality of life.
Whether you find joy in shopping for the latest fashion look or maintaining a stellar skincare routine, your budget should not ignore the activities that make you happy and contribute to the other wellness areas of your life.
Plus, when you create a budget that considers these purchases in advance, you’ll find it much easier to avoid those impulsive shopping excursions and reward yourself for making savvier financial decisions.
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The Kewl Shop is a blog. We write about all things lifestyle with a strong focus on relationships, self-love, beauty, fitness, and health. Important stuff that every modern woman or man needs to know.
Editor: Charles Fitzgerald