An important component of overall wellness that is often overlooked is financial wellness. Financial wellness can be difficult to achieve for a variety of reasons, whether that be low income, high standard of living, debt, lack of financial knowledge, etc. But the stress and anxiety that surround a difficult financial situation can be detrimental to mental wellness and the potential for serious financial consequences, such as losing your home, are enough to make financial wellness a priority. So, what can you do to begin the process of taking control of your finances?
Step #1 – Assess Your Current Habits: Knowing where you currently stand financially can help you to assess where you want to be. Start by tracking your income and your spending. Once you work out how much money you are spending – and what you are spending it on – in comparison to your income, you can better evaluate where you can make changes.
Step #2 – Create a Realistic Budget: Create a budget. Balance your income with your spending. Be sure to account for all your needs before you account for your wants and make sure that you create a realistic budget you can actually stick to.
Step #3 – Pay Yourself First: A priority on your list should be paying yourself. Your first goal should be putting money into an emergency fund for yourself. Once your emergency fund has at least $1,000 you can move on to saving for other goals for yourself – think short-term, long-term, necessary, fun, etc.
Step #4 – Pay Off Debt: Paying off bad debt should be the next focus after saving some money in your emergency fund. High interest debt, like credit cards, should be paid off as quickly as possible to avoid paying large amounts of money in interest.
Taking the initial steps by evaluating your current situation, creating a budget, saving an emergency fund, and paying off debt will help to boost your financial wellness. But developing an understanding of and utilizing other financial components can be useful, as well.
Firstly, know your credit score. Many banks and credit card companies offer credit monitoring with their services and there are also free services, such as Credit Karma. Many of these services will also offer tips to help you raise your credit score. And some offer identity theft monitoring and protection, as well.
Secondly, be sure that you are adequately protected in case an emergency arises. We already discussed setting aside an emergency fund, but you should also ensure that you have enough insurance coverage – disability, life, etc. – to compensate you and your family. Contributing to accounts such as an HSA, FSA or 401k can also help you to save money because due to different tax structures leading to lesser or no tax. Many employers offer matches for these types of accounts, as well, so you may be able to earn free money just by contributing – there’s no reason to leave that on the table.
Thirdly, utilize available tools and technology to increase your financial wellness. The availability of tools, some free and some paid, that will help you create and follow your budget, track your credit score, etc., and the breadth of information and knowledge available on the internet to help guide you in your financial decisions, is all at your fingertips.
Once you have mastered the basic components of financial wellness, looking into options to increase your equity and invest might be right for you. Be sure to consult with financial professionals when looking into these options, but don’t be afraid to utilize different types of tools to boost your wealth and financial wellness.