6 Steps To Maintain Financial Wellness in 2020
According to the CFPB, financial well-being is defined as, “A state of being wherein you have control over day-to-day, month-to-month finances; have the capacity to absorb a financial shock; are on track to meet your financial goals; and have the financial freedom to make the choices that allow you to enjoy life.”
Don't be overwhelmed with negative thinking about finances. Know what you owe and make a plan to control debt with these 6 steps and healthy habits to chip away at debt and build savings.
1. Spend Smart
Live within your means:
Write down every expense for a month to see where your money is going. You may be able to identify "extra money" to apply to savings. If you have two incomes, try to cover all your expenses with one and use the other for savings. Before buying something, ask yourself if you really, really need it. Maybe wait a few weeks to decide.
2. Increase savings
Saving for retirement, children's education, emergencies, or other expenses can give you peace of mind. Give savings the same importance as paying bills, and save something from each paycheck. See if your employer has an automatic savings program. Contribute at least enough to qualify for matching funds, if offered.
Many experts suggest putting at least 10% of your income into savings — and some recommend as much as 25%. Sound too hard? Start with one percent of your paycheck and increase as your salary grows. Save enough in an emergency fund to cover at least six months' worth of expenses — nine to twelve is even better. If you ever use it, rebuild it fast.
A recent survey conducted by Prosper Marketplace found that nearly 60 percent of Americans do not have the financial freedom to enjoy life. Nearly half of the people surveyed said they were living paycheck to paycheck and few have the means to absorb a financial shock. That’s stressful.
The truth is our ability to manage finances affects every part of our life — from the big things, like the flexibility to change careers, to the small things, like whether you can afford a morning latte.
Money can even affect relationships: another survey by the American Institute of CPAs and the Ad Council found that finances are the number one cause of stress for young couples.
Taking control of your finances goes a long way toward improving your overall wellness and a few small steps can make a big difference. So, here are four easy ways to start reducing stress and improving your financial wellness today:
3. Make a budget
The first step towards financial wellness is understanding where your money is going. Start with a list of monthly expenses, including the fixed costs (like rent, phone and car payments), as well as variable costs (like dining and Netflix). Look at your past debit and credit card statements to get an accurate look at where you’ve spent money, and decide whether there are any recurring costs or occasional expenditures you can eliminate.
4. Stick to your budget
Track how much you (really) spend. There are great mobile apps can help keep tabs on what you’re charging and the money you’re withdrawing. Look for tools that categorize your transactions, so you can see your spending at a glance. Check out Young Adult Money’s list of top personal finance apps for the ones we recommend.
5. Save for an emergency
You can’t predict life, but you can try to prepare yourself for it. Experts advise saving a cushion of about six months’ worth of expenses. Even if you don’t have much in your account, you can start small by automatically transferring a small portion of your paycheck into savings each month. Even $10 each week will add up and come in handy if financial disaster strikes.
6. Allow yourself the occasional splurge
It goes without saying that spending too much on frivolous things can set you back. That said, it’s unrealistic to cut out extra spending entirely. It’s kind of like dieting — if you’re too strict with yourself, you end up feeling deprived. Strive to find the right balance of saving and spending, with a few splurges here and there.
It’s never too soon to get on a path to financial wellness. Building confidence in your ability to save more and chip away at debt will improve your relationship to money.
You’ll cross that threshold from being continually stressed about your finances to feeling like you have a handle on your budget – and that’s a major step in the right direction.