If you’re looking to improve your financial wellness, it can feel like a tall order. Taking on any challenge is daunting and the first step is usually the hardest. Knowing where to begin is hard enough and sometimes we can be our own worst enemy. When it comes to our financial well-being, it can be difficult to know where to focus first.
Don’t let analysis lead to paralysis. We become easily overwhelmed and that often results in inaction. If you can take things one at a time and at a reasonable pace, you’ll be amazed how quickly you can improve your personal finances.
If you’ve neglected your savings and finances in general, don’t try to repair the damage all at once. Take some easy steps. Taking on too much risks burn out. Don’t bite off more than you can chew. If you haven’t exercised in a while, don’t start by running a 5k. Build up to it. Start with achievable milestones.
What is financial wellness?
Financial wellness is your total financial well-being.
Your ability to cover emergencies, set money aside for the future, control spending, and set boundaries with your money all contribute to a state of financial well-being.
Financial wellness is not about getting rich. It’s not about extreme frugality. It’s not about retiring by age 35. It most certainly isn’t about perfection.
Let’s explore ways we can learn, grow, and improve our financial wellness.
1. Increase your contributions gradually
Increase your 401(k) or other retirement contributions every year. After all, don’t you deserve a raise? Contact your payroll or human resources department and increase the amount you’re contributing. Even if it’s only a 10% increase, do it now. When you’re ready to tackle more, increase it again.
Get in the habit of gradually increasing your contributions. It can be hard to hit the annual 401(k) and 403(b) maximum of $22,500 each year. In fact, most people don’t. If you make it your goal and take gradual steps, you will be there before you know it.
Don’t underestimate the power of small increases over time. When the budget is tight or you’re starting out at your first job, it can feel like there isn’t enough left over to make investing worth it. Regular increases in your savings will improve your finances.
2. Capture all your employer’s matching dollars
Most company retirement plans allow you to contribute a portion of your salary toward retirement. Some will even match what you contribute. The most common company matching for 401(k) plans is called “safe harbor.” The name isn’t important. What matters is how much you can gain from this type of plan.
The general rule of thumb is to contribute at least 5% of your pay to capture 100% of the employer match. Stated another way, if you make $100k per year and contribute $5,000 to the plan, the employer will give your $4,000! We won’t get stuck in the weeds on how employers match here. You can dive into that via my article 401(k) Plans And How To Use Them.
Whether it’s a 401(k) or SIMPLE IRA, make sure you contribute enough to receive 100% of what the employer will match at minimum. If you don’t, you’re leaving money on the table.
3. Start a 529 College Savings Plan
Many 529 College Savings Plans can be started with as little as $25 per month. These accounts have special tax benefits like Roth IRAs. Money you sock away will grow tax deferred and withdrawals for qualified education expenses are tax free!
Type 529 into a search engine and you can be opening an account with a major financial institution within a few clicks. If you need to do a little more looking, research which plans might be right for you. Start saving early with a 529 plan to improve your financial wellness.
4. Update your beneficiaries
Make sure to check the beneficiaries on your account. If you have any type of IRA or company retirement plan like a 401(k) or 403(b), make sure your beneficiary elections are up to date. Calling your investment provider or contacting your retirement plan administrator can be an easy way to see who is listed as a beneficiary.
Also, many retirement plans allow you to choose a contingent beneficiary in case something happens to you and your primary beneficiary at the same time. A quick phone call can make a big difference for your loved one’s financial future.
IRA beneficiary designations are of major importance and should not be neglected. As our lives change, we need to be diligent in making sure our records are up to date and reflect our current goals and objectives.
Failing to do so may result in major problems that could negatively impact relationships with family members. Improve your financial wellness and get up to speed on designating your IRA beneficiaries.
5. Pull your free credit report
You are entitled to request your credit report at no cost once a year from the three major credit reporting agencies. Monitoring your credit score is critical to your financial health.
Unresolved or incorrect issues on your credit will result in higher borrowing costs at least and denial of credit at worst. If you don’t have a 720 credit score, start taking steps to improve it.
Not all debt is created equal and there are no set standards as to what is considered too much. What is manageable for one may not be for another. Credit is inherently a good thing but racking up the credit card balances can get ugly quick.
To be fair, credit cards aren’t the problem. Nor am I suggesting that debt is bad. How we manage and monitor our credit is what matters most.
6. Start an emergency fund
Credit cards are not an emergency fund. Start saving a portion of your pay to handle the unexpected expenses that inevitably pop up to help you avoid the credit card trap. If you don’t have a rainy day fund, start one. If you have one, give it a boost!
Consider saving six months’ worth of your living expenses and don’t gamble with the funds in the stock market. An emergency fund should be invested in stable and liquid accounts like money market, or an FDIC insured bank savings account.
If you are investing with a longer-term time horizon, it would be completely prudent to allocate a portion of your investments to stocks. While money market and savings accounts are very low risk, they may not be the best bet for returns over the long term.
7. Work with a Certified Financial Planner™
You might be thinking you can’t afford a financial planner or don’t have enough to invest to become a client. If someone doesn’t have the resources for help, there are CFP® professionals who will provide free, and no strings attached advice.
Here’s how a Certified Financial Planner™ can help your financial well-being:
8. Know where your money goes
Keep track of how you’re spending money . You don’t need to go crazy with it. Just make sure you know how your expenses rank from highest to lowest. Turn your financial situation into a game. Every year go through all your bills and see what you can cut out or reduce.
You would be surprised how many things are negotiable. Sometimes it’s simply a matter of calling you cable company and telling them you’re going to bail. Next thing you know, you have a new plan and are saving $20 per month. I know you’re thinking 20 bucks won’t make a difference. By itself, you’re right. However, added together with all the others, it adds up to a lot.
9. Reduce your debt
The process of repaying your loans may appear daunting, but you can do it. The amount and type will determine the payoff strategy. High interest debt and personal loans can feel like a dark cloud following you around. Remember, you’re in control.
Whether you have student debt, credit card balances, a car loan, mortgage or all of these, creating a plan is key. Evaluate your situation, set goals, and begin the process of tackling the debt.
Be careful. Our desire to be “debt free” can have unintended consequences. Address the bad debt like credit cards first. Mortgage debt is a necessity unless you’re independently wealthy so don’t stress about it. Make sure you’re in a fixed rate loan with a competitive interest rate. Just don’t let your desire to pay off debt prevent you from savings and investing.
10. Set financial boundaries
If you have people in your life who are not contributing to your financial health, it’s time to re-evaluate those relationships. It’s hard to say “no” to a good time. It’s hard to say “no” when someone asks for financial help.
I’m not suggesting we don’t help those in need or give to charity. However, we need to set boundaries and make sure we are not being taken advantage of.
Your financial wellness is a priority. Setting boundaries will help nurture it.
Pursuing a secure financial future is a journey, not an event. You don’t need to tackle all these steps at once. Take them one at a time. Once you do, you’ll be ready to take on more and you’ll be amazed at what you can achieve.