5 Tips for Financial Wellness
Financial Wellness Month is observed throughout January as a reminder to pay close attention to financial spending and prepare finances as the new year begins. This month also encourages organizing your finances to help work towards financial stability. Having control over your finances can help prepare you for any unexpected events, reduce stress and help you build wealth over time.
Financial Wellness Tips
1. Create a budget
Having a budget can help you manage your finances and get a good sense of what it costs to run your life. There are many different techniques for budgeting, depending on your household, personality and needs some budgeting plans may fit you better than others. There are budgeting apps that can help manage finances, track expenses and place them in budget categories (1).
2. Have a solid emergency fund in place.
In seasons of uncertainty, the more money you have saved, the better. By saving money with an emergency fund, you can help your long-term financial security. Start by putting aside what you can afford to help cover the cost of common emergencies such as medical bills, home and car payments (2). Prioritizing this savings account, even putting in small amounts of money, can make a big impact over time.
3. Plan for retirement
It is never too early to start saving for retirement. If your employer offers a 401(k) plan, start contributing pre-tax money with every paycheck. Another option to consider is opening an individual retirement account (IRA). There are two options: a Roth IRA and a traditional IRA. A Roth IRA has after-tax contributions; once you turn 59 ½ you can withdraw your distributions tax-free. A traditional IRA has pre-tax contributions; when you withdraw, this money is taxed as ordinary income (3).
4. Become debt free
Debt is a huge burden. Not only can being debt-free save you a lot of stressors but it will also help you save money in interest. There are two common strategies for paying off debt: the “highest interest rate method” and “the snowball method.” The highest interest rate method focuses on debts such as student loans and credit cards with the highest rate of interest, your goal being to pay those debts quickly as possible. The snowball method focuses on your smallest debt. By making minimum payments on all your debts except the smallest, you opt to pay as much as possible on your smallest debt (4).
5. Build your credit score
Having a good credit score can be important for qualifying for a better interest rate when getting a loan, but it is also a good representation of good money habits. A key way to increase your credit score is paying all your bills on time. This is one of the most important factors when building credit and what makes up your FICO score. You should always aim to pay your bills on or before their due date (5).
Sources:
(1) Henricks and Strohm, “How to Make a Budget: 5 Time-Tested Approaches, Forbes Advisor, 12. Apr. 2022, https://www.forbes.com/advisor/banking/how-to-make-a-budget-time-tested-approaches/
(2) Dohn, Kristin, “Get money smart. 25 tips to improve your financial well-being", Consumer Financial Protection Bureau, 24. Oct. 2019, https://www.consumerfinance.gov/about-us/blog/get-money-smart-25-tips-improve-your-financial-well-being/
(3) “Traditional and Roth IRAs”, IRS, 26. Oct. 2022, https://www.irs.gov/retirement-plans/traditional-and-roth-iras
(4) Dantus, Couurtney-Rose, “How to reduce your debt”, Consumer Financial Protection Bureau, 16. Jul. 2019, https://www.consumerfinance.gov/about-us/blog/how-reduce-your-debt/
(5) Brown, Jerry and Tarver, Jordan,”How to Build Credit Fast: 7 Simple Strategies, Forbes Advisor, Aug. 18. 2021, https://www.irs.gov/retirement-plans/traditional-and-roth-iras