7 Tips for Financial Wellness
While finances may not be the first thing that come to mind when you think about your health, the truth is that your financial situation does impact your well-being in a significant way. In fact, more than 60% of Americans cite money as their biggest source of stress. Considering that stress accounts for an estimated 70-95% of doctor visits, it’s important to focus on our financial wellness regularly.1 2
Just as financial stress affects our mental, physical, and spiritual health, our health in these areas can also affect our finances. A financially strapped person is more likely to be unwell, and those who are less healthy also tend to earn and save less.3
What is financial wellness?
From listening to people around the country share what financial wellness means to them, the Consumer Financial Protection Bureau developed a general definition of financial well-being:
“Financial well-being is a state of being wherein a person can fully meet current and ongoing obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.”4
Based on this definition, we can see that being financially well doesn’t simply mean that you have financial freedom to live how you want to live today, but also that you are on track to meet your financial goals in the future.
Improving your financial wellness
At the end of 2020, it was estimated that 63% of Americans live paycheck to paycheck.5 Those who are in this situation likely don’t feel secure about their financial future, and are of course having to constantly deal with the stress of making ends meet.
But whether living paycheck to paycheck or not, we should all be taking steps to improve our financial wellness so we can have the freedom to enjoy life to its fullest and not be bogged down with stress and worry. Although turning a less-than-ideal financial situation around can feel like a daunting task, there are some simple steps you can follow to improve your financial wellness steadily over time.
1 – Create a budget
One of the biggest issues people have with their finances is that they often don’t have a clear picture of what they’re spending their money on and what they can realistically afford. As such, creating a budget is an important first step for anyone looking to improve their financial wellness.
To get started with your budget, start by tracking your sources of income and each of your expenditures for a full calendar month. You can add each expenditure to a category, such as “entertainment” or “healthcare” to get a better idea of where your money is going. A simple spreadsheet can help you easily track your expenses, or you can use a spending tracker like this one to enter your expenses.
Once you have a budget in place, keep tracking from month to month. This will help you to see where unnecessary spending is occurring so you can make adjustments and start saving more.
2 – Manage debt
While often necessary, loans and credit can be disastrous to our financial wellness when managed poorly. Interest from loans and credit can be a silent killer that eats away at our finances every month. This is especially true for credit cards, which often charge upwards of 20% in interest.
There are a couple of solid strategies you can use to start paying off your debt. The first one is the highest interest rate method, which is paying off your debt with the highest interest rate as soon as possible. Another strategy is the snowball method, which involves getting rid of your smallest debt as soon as possible. This method tends to free up money more quickly which can then be used to tackle the next smallest debt, and so on.
3 – Boost earning capacity
While creating a budget and managing debt are important first steps to improve financial wellness, earning more money is typically the surest way to achieve the financial freedom you desire. A few ways to boost your earnings from your regular source of income include learning a new skill, getting a degree, asking for a raise, switching jobs, and networking in person and on career websites such as LinkedIn.
Along with increasing income from your regular job, another way to increase your income is by doing a side hustle. A side hustle is a flexible second job that provides another source of income. This can be anything that makes you extra money. However, it’s a good idea to make your side hustle something that you are passionate about. That way, it doesn’t feel like another job that drains you or wears you out. Plus, you’re more likely to succeed if you’re passionate about what you’re doing.
A few ideas for side hustles include:
- Selling items you own on eBay, Amazon, Poshmark, etc.
- Creating handmade products and selling them on Etsy.
- Starting a dropship store on Merch by Amazon, Teespring, etc.
- Doing photography
- Creating and selling educational courses on Teachable, Kajabi, etc.
- Starting a YouTube channel
- Starting a blog/website
- Doing freelance work on Upwork, Fiver, etc.
- Renting out an extra room, second home, etc.
4 – Have an emergency fund
Although the average savings account balance in the United States is approximately $41,700, the median balance is estimated at just $5,300 according to recent data.6 This difference is due to a smaller number of large bank accounts skewing the average upward.
Having around $5,000 in your bank account provides a decent buffer against the unexpected. However, this may only be enough to take care of your bills for one or two months. Ideally, you should have enough in your bank to cover your bills for 6 months or longer in the event of a job loss or other unexpected circumstance.
In addition to your bank account, you may want to consider having some extra physical cash on hand for emergencies. And, of course, you should also put some money into acquiring food and water storage as well as other essentials that can last you a couple of months or more. Our supply chain can quickly dry up, as we’ve seen with recent events, so you don’t want to be stuck without food and water when another disaster comes along.
5 – Build your savings
When you have a decent emergency fund in place, you can focus on building your savings. In addition to having a side hustle, another way to build up your savings is through investing.
The stock market is one of the most popular and lucrative ways to invest money. It is estimated that the average return of a 401(k) plan is 5 to 8%.7 This means that if you make $50,000 and contribute 10% of your income to a 401(k) starting at 25 years old, you could have between $800,000 and $1.75 million by the time you are 65. You can use the Bankrate Retirement Calculator to adjust these numbers and see how much you could potentially have when you retire.
A 401(k) plan typically allows you to choose the amount of risk you are comfortable with and allows you to hedge your stock portfolio with safer assets such as bonds. You may just want to invest in the stock market through your 401(k) only, but you can also invest in individual stocks on your own. If you go this route, it is recommended that you consult with a financial advisor, as this can often be riskier than investing in a 401(k) plan.
Other ways you can invest your money include real estate, precious metals, and annuities. More recently, bitcoin and other cryptocurrencies have grabbed the headlines as a way to make even greater returns. While many of these cryptocurrencies have increased dramatically in price, they are also more volatile than most stocks. Additionally, many of the exchanges where you can buy cryptocurrencies are not FDIC insured against loss from hackers and other security risks. So again, consider your risk profile and talk to a financial advisor before investing your money in this market.
With inflation problems caused by increased money printing and supply shortages, investing your money makes a lot of sense. Just make sure that you do it wisely.
6 – Protect your money
Many people become so concerned with building their wealth that they forget to protect their money against potential losses. The first golden rule to consider in this area is that it’s not what you make that matters most, but what you spend. Spending more than you bring in each month is one of the biggest threats to your ability to protect what you have.
If you are investing in the stock market outside of your 401(k) plan, another way to protect your money is to place stop orders on your positions. A stop order is an order to sell a stock if it drops to a specified price. Many financial experts recommend placing 25% trailing stops. This means that the stop price moves up as the price of the stock moves up, which helps you to capture gains while avoiding big losses.
On top of this advice, it’s important to make sure that your money is secure. If you have cash and other valuables on hand, invest in a fireproof safe. And for your online accounts, you should follow these practices:
- Use strong passwords and 2-factor authentication
- Use only trusted Wi-Fi networks to access your accounts
- Contact the company directly to verify any phone or email requests
- Check your accounts frequently
- Check the URLs of the websites you are logging into to make sure they are the official sites
Lastly, two more important things to consider for protecting your wealth are limiting your tax liability and protecting your assets from loss or potential lawsuits. A tax advisor may be able to help you find legal ways to limit the amount of taxes you pay, while things like insurance and estate planning can help you further protect what you have.
7 – Create better money habits
While all these tips are ways that you can create better money habits, the psychological component of financial wellness plays a large role in developing sound money habits. The right mindset leads to good financial habits, which can help you earn more money and manage it better. To this end, our EVOX perception reframing software can assist you with breaking through emotional roadblocks that are preventing you from achieving the financial health and success you desire.
The Select, Elite, and EVOX software all allow you to scan several affirmation statements related to money to determine which affirmations the body responded to most strongly. However, the EVOX allows you to take it further by recording your voice as you speak about the chosen affirmation statement. Through the EVOX’s biofeedback process, you can then begin to integrate that statement more fully to achieve more significant, long-lasting changes.
1. “Effects of Financial Literacy on Health.” Enrich. Enrich.org.
2. Casarella, Jennifer. “The Effects of Stress on Your Body.” WebMD LLC.” Webmd.com
3. Crist, Carolyn. “Poor Health Could Be Costing You $4,000 In Earnings a Year.” Hearst Magazine Media, Inc. Menshealth.com.
4. “CFPB Financial Well-Being Scale: Scale Development and Technical Support.” Consumer Financial Protection Bureau.” Consumerfinance.gov.
5. Leonhardt, Megan. “63% of Americans have been living paycheck to paycheck since Covid hit.” CNBC LLC. Cnbc.com.
6. Perez, Lauren. “Average U.S. Savings Account Balance 2021: A Demographic Breakdown.” ValuePenguin. Valuepenguin.com.
7. Wohlner, Roger. “Average Stock Market Return.” Wealthsimple Technologies Inc. Wealthsimple.com.