It can be overwhelming to try and manage multiple financial priorities. You can take a few simple, but crucial steps to help you manage your money and get on the right path to financial success in the future. Establishing a budget, managing your cash flow and debt, creating emergency savings, and automating your savings are the most important steps to financial wellness.
What is financial well-being?
Financial wellness refers to the development of healthy financial habits and being in control of your finances. This could include investing, budgeting, and eliminating debt.
These six steps will help you reduce stress and get on your way to financial freedom.
1. Begin with a budget
Knowing where your money is heading is the first step to achieving your financial goals. You can create a budget to help you make sure that your spending and saving are in line with your priorities.
There are many ways to simplify budgeting. There are many options for budgeting. You can use a spreadsheet, pen and paper, or apps. Whatever method you use to create your budget, it is important to list all your monthly expenses. Fixed expenses such as your mortgage, rent, student loans, and phone; variable expenses such as groceries and entertainment; and irregular expenses such as home repairs or health care costs.
Make sure you include savings goals when creating your budget. It is a good idea to first pay yourself. That means prioritizing savings goals in your monthly essential expenses.
It is important to include a plan for reducing debt in your budget. Debt is often a major driver of financial stress, and can often derail long-term savings goals. Make the minimum monthly payment on all debt. Next, target high-interest debt like credit card balances. While you are taking care of your existing balances, it may be necessary to make some short-term adjustments to your savings and spending plan.
Once you have a clear understanding of your expenses, you can compare them to your income and make any necessary adjustments. You should keep track of your spending after you have established your budget. This will help you to stay on track and reach your goals.
2. Save money for an emergency
A good first step to financial security is the creation of an emergency fund. You can save money by creating an emergency fund to cover unexpected expenses and not disrupt your long-term savings plan or budget.
What amount do you really need? We recommend that you save at least $1,000 to cover any emergency while you work. You can then build up an amount that covers three to six months’ worth of expenses. You may need to save enough money to cover six months if your income is unpredictable, such as if you work freelance or for commission.
Although investing is a great way to grow your savings, it’s best to keep your emergency fund in a savings account, checking account, or money market account. These accounts offer lower-risk investing and quick access to the funds when you need them. You should always replenish your emergency savings fund if you have to access them.
3. Automate your savings
Automating your contributions is a great way to keep track of your savings and investments. Automating your contributions saves time and requires no ongoing effort. Once you have it set up, you will be able to make progress toward your goal. Automation also removes the emotion from investing and helps you to stick to your plan, despite market fluctuations.
You can stick to your plan even when there is market volatility. This is called dollar cost average, which allows you to buy more shares at low prices and less when they are high. Dollar-cost averaging is able to lower the average price of stock shares in volatile or down markets. If the stock price is lower, you can accumulate more shares and benefit from a rebound in the market.
Automating your purchases eliminates the temptation to overspend. Automated money routing allows you to focus on your goals and not be distracted by tempting purchases. You can also keep track of your savings and investments using the Prillionaires wealth tracker.
4. Each year, increase retirement contributions
Saving as much money as you can and starting early is key to achieving your retirement goals. T. Rowe Price analysis has shown that you should keep about 15% of the income you earn, including any employer matches, during your working career.
If you are in this group and cannot reach 15% immediately, you should at least contribute enough to receive the employer match. Then gradually increase your contributions. See Saving early makes a difference. Many workplace plans provide a service that automatically increases your retirement contributions by one to two percentage points every year. Although the incremental increases may not seem significant, they can make a huge difference over time.
5. Financial education and tools are available
There are many ways to get assistance. Many employers offer tools and education programs that help employees set goals and take small steps toward achieving them. Many employers offer financial support such as matching retirement contributions, student loan repayment, tuition reimbursement, and other benefits.
You don’t have to go to your employer. Many financial companies, such as banks and brokerages, offer education and tools online that are free. Financial advisors can assist with everything, from the creation of a financial plan to the ongoing management of investments.
6. Increase your earning power
It can be hard to come up with the funds to pay down your debt and build savings. Your financial success is directly related to how much you earn. It makes sense to include your income in your overall plan.
Your earning potential may increase. To improve your career prospects, you might consider additional education. To support your education, many employers offer tuition reimbursement or training programs. Side hustles, side jobs, or small businesses can increase earnings. Although it may be difficult to find a way of making more money, this can help reduce stress and improve your financial self-determination.
Financial wellness is a lifestyle
Financial wellness should be a lifelong process. These six steps can help you get to financial wellness. You will be able to manage your finances better, have less stress, and reach your financial goals.