What is financial wellness? Being rich or flushed with cash doesn’t mean you have a healthy financial wellness. But your financial wellness is very much tied in with your overall wellbeing as a human. Financial wellbeing enables people to better enjoy life in general because you don’t have the daily stress of worrying about your finances. I know, easier said than done, right? But financial wellness is more than just having enough money in the bank so you don’t have to worry. It also means having control over day-to-day finances, being able to absorb a financial shock, being on track toward financial goals and having the freedom to make choices that help you enjoy life. Financial wellness looks different for everyone, because we all make different amounts of money and live different lifestyles, but there are a few key components that everyone should follow in order to maintain their financial wellness.
Here are some top tricks and habits for improving your financial wellness:
Practice mindfulness with your finances
Financial wellness is as much about your state of mind as it is about your financial situation. To promote personal financial wellness, start with mindfulness. Think about your relationship with money, especially your emotional connection to it. Money is a tool, not an end in itself, so think about how to use it wisely rather than obsessing about how to accumulate it. You also want to cultivate a grateful mindset that reminds you of what you have, and that you deserve to be happy and free to accumulate wealth. Like the greats say, “manifest that shit.”
Understand where your money goes
The prequel to your financial story begins with a look into your past and current finances. What do you spend money on, and where are you getting your income? By tracking these components, you can get a better sense of your financial picture today so you can plan for the future.
Review your spending plan
If I could boil down my advice for spending into a couple of sentences, it would be this: spend less than you earn. Bolster your savings and reduce your expenses. Remember, just because you can have something doesn’t mean you need it.
Now is the time to review your personal budget to confirm that you are living within your means and saving enough money to achieve your long-term goals. To help cut costs, review your bills and verify that you are being fairly charged for services and these services are valuable to you. Discontinue or renegotiate any services that are not necessary or do not meet your criteria of being fair and valuable. After you have a map of your overhead costs (rent, bills, insurance), you can see how much you have left for saving and spending. The more you’re aware of where your money is coming from and where it’s going, the better your overall financial wellness will be.
Protect and potentially freeze your credit
I’m actually not that big on credit cards because I think they make it far too easy to succumb to unnecessary debt and superfluous spending. Everyone should have at least one credit card with a low-interest rate in order to build their credit. If you want to buy a new car or apply for a mortgage, you have to have some history with using and paying off a credit card, otherwise, lenders will label you a “ghost,” which, to many, is actually worse than having bad credit.
If you’re someone who is unnecessarily dependent on their credit card and you need help minimizing your credit card use, consider contacting a credit bureau to freeze your credit. You can even freeze your credit via smartphone apps. You can always deactivate the freeze when you truly need to apply credit for a big purchase. Not only will this help with your credit card spending, but it will also help protect you from identity theft. If you prefer not to freeze your credit but want to reduce credit card spending, put your credit cards in your actual freezer—jk. But seriously, if you don’t carry them with you, you’ll be less likely to whip them out for an impulse purchase.
Build your rainy-day fund
This is the first thing you should tackle, even if you’re paying off credit card debt. Whether you keep it in a savings account or in an envelope in your sock drawer, put $1,000 into a rainy day fund. While you should build up three to six months of expenses in your savings (you know, in case something like a world-wide pandemic hits), that $1,000 shouldn’t be touched unless it’s an absolute emergency. Not an extra $1,000 to throw at Christmas shopping or that last-minute vacation. That $1,000 stays in the envelope until your transmission goes out or the laundry room floods.
After you have your $1,000 squirreled away, you can begin tackling your debt and building up your retirement and education plans. At the very least, try to contribute enough to your employer’s retirement plan to max any match you can get or you’ll leave that free money on the table.
Boost your earning capacity
No, you don’t need a second job. Even as your earnings increase, try to live off a set income level and add to your investments. Allowing your interest-earning accounts to grow will help you offset any downturns or emergency expenses.
Instead of chasing past performance or trying to time the market, pick an asset allocation strategy (fancy way of saying how much you put in different types of investments like stocks, bonds, and cash) to match your time frame and personal risk tolerance. The simplest way to do this is with a target date fund for retirement or an age-based allocation portfolio for education savings since they are fully-diversified one-stop shops that automatically become more conservative as you get closer to the target retirement date or education age. In any case, look for low-cost investment options to build your nest egg.
Allow yourself the occasional splurge
Life is all about balance. It’s unrealistic to cut out extra spending entirely. Think of your financial wellness like dieting—if you’re too strict with yourself, you end up feeling deprived. Strive to find the right balance of saving and spending, with a few splurges here and there, but only when you can safely take the risk.
Main + featured image via our home tour with Shereen Jupp.