When you can effectively manage your income and expenses, you’re achieving a state of financial wellness. While money isn’t guaranteed to make you happy, taking care of your finances can greatly reduce stress and improve your overall health. Keeping track of expenses, making a budget and sticking to that budget are important in order to be financially responsible and independent. Improving your financial wellness now will help protect you from potentially stressful financial situations in the future.
Since financial health contributes to your overall well-being, many employers include resources in their employee benefits packages. Check your benefits information and see—you just may have everything you need to get started on your path to financial wellness!
Five simple steps to improve your financial health
Beyond resources you may already have at your fingertips, you can also spend time on your finances today. Take a few small steps to learn how to tackle your debt, sort out your savings and plan for the future. Financial health doesn’t have anything to do with how much money you earn–-it’s how you manage your money both short- and long-term.
- Set financial goals. Managing your money is equal parts earning, spending and saving. By looking closely at your finances, you’ll find areas of spending you can prioritize to help you set achievable fiscal goals. It’s a matter of finding the right balance that works for you.
- Start an emergency fund. Your emergency fund should typically be able to cover your average living expenses for roughly three or four months. Depending on your current level of debt, it could be difficult to set aside large savings each month, but don’t be discouraged. Setting aside just $50–$100 a month can help you get an emergency fund started while still paying off existing loans. Target a realistic goal for three months from when you start and see how you do. Then you can adjust your goal accordingly for the next three months, and so on.A great option to consider so you’re not just saving money at home is to create a liquid account with your bank. A liquid account allows you to quickly access your money without penalty.
- Create a budget. By creating a monthly budget, you’ll be able to identify areas of wasteful spending and prioritize money management that will help you achieve your financial goals.The first step of mapping out a budget that fits your needs is reviewing three key areas: your income, your savings and your spending. Compare your monthly income to your essential monthly bills—these are typically costs like your rent/mortgage, transportation fees, ongoing credit balances and your average weekly grocery totals. Identifying these essential areas of monthly spending can help you prioritize your remaining balance. You might find areas where you can start cutting back to help your savings, such as eating out less frequently or canceling expensive memberships.Depending on the financial goal you’ve set, you can now start setting specific dollar amounts towards that goal—be it paying off loans, saving up for a new purchase or vacation, or simply starting a new savings account. If possible, be sure to keep a certain amount targeted for savings each pay period. This can help you build up an emergency fund or savings blanket to prevent living paycheck-to-paycheck.
- Reduce debt and/or calculate your debt-to-income ratio. Arrange your debts by balance, smallest to largest. Don’t worry about interest rates. Focus on the first balance on your list by paying as much as you can each month while making minimum payments on your other debts. Once you’ve paid it off, use the sum you were paying monthly on your next debt and so on until your debts are paid. When you finish that first debt, you’ll be motivated to end all your debt.
- Consider your future. The money you were using toward debt can now help you build your future. Your goal can be to invest 15 percent of your household income into pre-tax retirement. If it’s offered, start by investing enough in your company 401(k) plan to receive the full employer match.If you have children, two smart ways to save for their education are 529 college savings funds or Coverdell Education Savings Accounts (ESAs). These are both tax-advantaged savings options specifically for saving and paying for college expenses. Similar to Roth IRAs for retirement, you can invest in mutual funds through these accounts.But before you choose either option, do your homework! Depending on your income and where you live, a 529 fund might be better than an ESA.
Remember, managing your money is equal parts earning, spending and saving. It’s a matter of finding the right balance that works for you. By creating a budget and setting financial goals, you’ll be on the path toward fiscal wellness and improved financial health.
This article is for informational purposes only, and is not meant as medical advice.