Financial planning can be a difficult—even overwhelming—task. Loans, debt, credit, savings: all of these finance concepts become confusing fast when you’re not sure how to manage them all at the same time. It’s true: most of us aren’t finance experts, but the good news is you don’t have to be in order to manage your money smartly.
Many adults aren’t taking full advantage of their savings, and yet, financial wellness is a major component to happiness and security. Luckily, there is tried-and-true advice that can help you achieve a financial wellness plan that works best for your income and lifestyle.
What is Financial Wellness?
You’ve heard about wellness when it comes to your health, but you may not be as familiar with wellness when it comes to your finances. Still, it’s an incredibly important factor in your overall well-being.
Financial wellness can mean different things to different people, but generally, it refers to two characteristics: security and freedom of choice. Security means you can cover your day-to-day expenses without worry, and have enough saved to cover emergency expenses or unanticipated bills. Freedom of choice means you can, within reason, choose where you want to live and what you want to eat and wear. It also means that you’re on track toward future financial goals, such as retirement.
Most everyone could benefit from advice on how to achieve a level of security and freedom that would make them feel financially “well.” Read on for our top savings tips, backed by experts and applicable to most everyone who wants to improve how they manage their money.
Top Savings Tips for Achieving Financial Wellness
The following savings tips should help you keep track of your finances, invest in the right areas, and ultimately improve your overall financial wellness.
1. Create a financial calendar
If you’re not sure where to start when it comes to developing a financial plan, start with what you know: Create a list of all of your bills, debts, and other current expenses. Then, plot these along a calendar so you can see on a monthly basis where your money is going. (Your bank may also be helpful in providing snapshots of what you’re spending money on; you can check online if they have a tool for this.) Your calendar should also serve as a reminder for when payments are due, such as for electricity or loans.
Consider this calendar a working draft: be prepared to adjust it when you complete step two.
2. Build a personal budget
Perhaps the most important step in financial planning is creating a budget. Without a budget guiding your spending decisions, you may be making less than ideal choices that are impacting your finances both in the short- and long-term. Follow these steps to budget correctly:
- Determine your after-tax income. If your paycheck automatically takes out money for savings or for retirement, add these back in to determine your true income.
- Select a budgeting plan based on your financial goals. Is your main goal to pay off your credit card debt? Or to build up your emergency savings fund? In any case, there are several budgeting plans available, and only you know what may work best for your needs.Many experts suggest the 50/30/20 plan, which involves spending money as follows:- 50%: necessities, such as rent and groceries
– 30%: lifestyle, such as entertainment and going out
– 20%: savings and debt payments
As you set a budget, you should also be setting specific financial goals for yourself. Use numbers and dates, not words. For example: “I am going to pay off X amount by X date,” instead of “I want to pay off all my credit card debt as soon as possible.” You’re much more likely to stick with a goal if it’s targeted.
- Revise your financial calendar to incorporate your new budgeting plan.
- Track your progress as frequently as possible (see step 3).
- Continue to revisit your budgeting plan as needed.
3. Take a daily money minute
The idea of checking your finances every day may not seem comfortable at first. But taking only a minute each day to review your financial situation has numerous benefits. You’ll know exactly what your money situation is, which will help you make day-to-day purchasing decisions without stress or fear of the unknown. You won’t miss important changes to your finances, which means no unpleasant surprises. And, if your information is ever stolen, you’ll be able to detect fraud right away.
4. Monitor your credit score
Your credit score is a number that indicates how likely you are to repay debt. Lenders look at this score when determining if you qualify for a loan. It’s important that you keep your credit score as high as possible so you seem creditworthy to lenders. Monitoring your credit score protects you from clerical errors and fraud, which could falsely diminish you score.
Experts recommend checking your score at least once per year. There are many credit monitoring agencies that allow you to check this number for free online, but be sure you’re using a reputable agency before offering any personal information.
5. Make decisions based on interest rates
When making financial decisions on savings, debt, and loans, pay attention to interest rates. Open savings accounts with the best interest rates to maximize the return on your money. Take out loans from lenders with the lowest interest rates. If you’re looking to make a major purchase, such as a house, and have flexibility on when to make that purchase, consider waiting until interest rates are low so you’ll get the best deal.
Most importantly, pay off any loans or debt with the highest interest rates first, as these will accumulate faster than lower interest rate loans. It can be tempting to pay off a smaller loan first so you no longer need to worry about it, but if that loan has a lower interest rate, leave it be and focus on the larger loan.
6. Try the all-cash diet
The all-cash diet can be great for individuals who are trying to reduce credit card usage or already have a lot of credit card debt. While our world is moving increasingly toward cards exclusively, cash is still the ideal way to ensure you’re making smart decisions on day-to-day purchases.
If you commit to using cash only for purchases, you’ll only be able to purchase items with money you actually have, not money that is being loaned to you on credit. If you’re serious about all-cash life, you can even have your bank place a temporary freeze on your credit cards.
7. Evaluate purchases by cost per use
When making a purchase, most people evaluate the item on its overall price and determine from there whether it’s worth buying. It’s time to rethink this method. A better way to understand the worth of an item is evaluating it by cost, per use. Take the total cost of the item and divide by how many times you think you’ll use that item in the next year. If the resulting number is worth it to you for each use, then consider purchasing it. For experiences, analyze on a cost per hour basis.
8. Leverage technology
There are hundreds, if not thousands, of budgeting and financial planning apps available. These can help you create budgets and financial goals, track your progress, and invest your money smartly. A simple internet search for the kind of task you need should bring up a list of apps that are there to help. Leverage these tools. By automating as much of your financial decisions as possible, you’ll save time, not have to worry about missing important payments, and have a better picture of your finances.