Your financial wellness is connected to your overall well-being. Being in over your head in debt, losing your job or having to pay for a large, unexpected expense can cause massive amounts of stress, and that stress can have negative effects on your mental and physical health.
Financial wellness addresses these problems and improves other areas of your life.
Nearly gone are the days of employer-funded pension plans that provide guaranteed retirement income for life. Rather, the burden now falls on employees to invest and plan for their future. As a result, it's more important to address risks and work toward financial goals than ever before.
There are several ways to improve your financial wellness, and in doing so, improve your overall quality of life.
Take Action Today, Not Tomorrow
If you're not sure whether you're saving enough for retirement, racking up credit card debt or don’t know where to begin when looking at your entire financial picture, there is no reason to put off figuring these issues out. (For related reading, see: Will Your Retirement Income Be Enough?)
Alternatively, if you've built up significant cash savings, been awarded stock options or inherited a large sum of money, you still must take the appropriate measures to ensure you're maximizing their benefits before it's too late. It's not uncommon even for people with wealth to get stressed over money. When it comes to discussing estate planning, legacy, gifting to family and achieving charitable goals, things can get complicated.
It's important to tackle the issues our personal finances can cause as soon as they arise.
Understand Your Cash Flow
All financial plans start with helping individuals or families understand their cash flow—how much money is coming in and how much money is going out. Without knowing this, it's nearly impossible to ensure you're adequately saving for retirement, making progress towards eliminating debt or saving enough for other goals (e.g. home purchase, emergency savings, etc).
To get started, begin by filling out an expense worksheet or use a budgeting tool. These can help you get a basic understanding of your cash flow.
If you're not a big spender and already have an emergency fund in place, you might consider putting more cash flow toward retirement savings or into a brokerage account (for access prior to retirement). If you're overspending and not making progress towards your goals, seeing how much you actually spend on coffee every month or those regular Uber rides can be eye-opening.
Make Changes in Your Spending Habits
Making a lasting impact on your cash flow requires changing your spending habits. For example, if you need to spend less money, try cutting up your credit card, deleting apps on your phone on which you spend unnecessary money or preparing coffee in the morning to take with you to work. Even small steps can result in a positively quantifiable improvement.
For example, you could begin working toward the goal of building up an emergency fund by setting aside a lump sum in a high-yield savings account or beginning automating cash transfers every month to a savings account. Typically, three to six months worth of living expenses is adequate to cover unexpected expenses or potential unemployment. (For more from this author, see: Why You Should Have an Emergency Fund.)
Prioritize What You Will Spend Money on
As our careers progress, families form and aspirations grow, it becomes increasingly difficult to prioritize your money and allocate it appropriately to what's meaningful to you or your family. You might be able to mentally manage certain things, like making sure you're contributing to a retirement account, have an emergency fund and are taking advantage of all employee benefits. However, things become much more complicated when you fold another person's finances into the equation with marriage, have kids, start a business, or scale the corporate ladder with increasingly complex compensation packages.
For example, if you want to provide for your children's entire education costs, establishing tax-advantaged accounts such as a 529 plan and front-loading contributions can be advantageous. Or, if you want to retire early and travel the world, socking away as much as you possibly can in a brokerage account might be near the top of your list.
The key takeaway when it comes to prioritizing goals is to include the people who will be impacted by the financial decisions or plans you want to make, and communicate openly and honestly. Money is just a tool we use to achieve meaning, purpose, fulfillment and joy in our lives.
Everyone Can Achieve Financial Wellness
Financial wellness can be achieved, and regardless of how time-consuming, stressful or intimidating the initial steps might be, it will be worth it in the end. Not only will it be quantifiable in the improvements you make to your balance sheet and cash flow, but you'll feel better mentally and physically as well.
(For more from this author, see: The Top 5 Financial Mistakes Millennials Make.)