Financial wellness is a touchy subject that can be difficult to comprehend. With many opposing views about the best ways to handle personal finances, one can never be sure which information is correct. With the increased demand for individuals seeking financial wellness, everyone can agree on a few essential tips.
In today’s economy, every person should have a basic understanding of financial literacy. Financial knowledge can be the difference between whether a person lives comfortably or not. Let us explore a few tips for financial wellness in 2023.
First, What Is Financial Wellness?
Before understanding how to achieve financial wellness, one must first understand what financial wellness means. Financial wellness is a term that is thrown around quite often. However, for those new to the world of personal finance, it is just another term people use.
Simply put, financial wellness is a person’s overall financial health. Financial wellness covers an individual’s capacity to control recurring expenses, deal with emergencies, and plan a better financial future.
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What Is Good Financial Wellness?
A person with good financial wellness has the money to live a life that they consider comfortable. They can pay their bills on time, enjoy hobbies, save for goals, and put away money for retirement. To shorten that, a person with good financial wellness can meet short-term and long-term financial goals.
Tips for Financial Wellness in 2023
Learn How to Budget
A budget is a spending plan that gives a purpose to every dollar made. It helps ensure that a person’s income is enough to cover their needs. Without a budget, individuals may find themselves overextending and without enough money to last until their next payday.
A budget can be as flexible or as strict as a person desires. A personal budget will depend on what will work best in each circumstance. Some people need to follow strict rules to stick to a budget, while others may thrive on the freedom of doing what they want as long as the bills are paid.
Various resources are available to help individuals learn how to budget, as well as different budgeting methods. In this age of technology, multiple applications offer easy ways to keep track of budgets. While these may work for some, others may find it more beneficial to write things down or to use cash instead of cards.
Here are some examples of popular budgeting methods:
Zero-based budgeting: Zero-based budgeting is a method of budgeting that puts every dollar made to use until there are zero dollars remaining. If a person makes $1,500 biweekly, everything they save, give, and spend is given a purpose within that $1,500 until the balance is zero.
Flexible budgeting: Flexible budgets include room for adjustments. The budget sets less specific goals for each category and allows money to be moved based on current needs.
Cash envelopes: For those who prefer to use cash for transactions, the cash envelope budgeting system uses cash for each spending category. The idea of cash envelopes is to split money into spending categories and only allow that money to be spent for that one category.
Increase Earning Potential
While making a budget can be incredibly beneficial, there is only so much budgeting one can do within their income limits. Sometimes, the answer is simply to make more money.
For some, this might mean returning to school to become a better candidate in their field or getting another source of income. For others, it can mean working toward a promotion in their current company or switching companies to make more money in their field.
Increasing earning potential can give a person better opportunities to save, pay down debt, and reach other financial goals.
Build a Healthy Emergency Savings Account
To reach financial wellness, a person must have healthy savings accounts. Savings are the key to being prepared for financial emergencies. As much as we would like to live in a perfect world, emergencies happen. Cars break down, injuries happen, and jobs get lost.
A 2022 article by CNBC mentioned that 56% of Americans can’t cover a $1,000 emergency expense. While 44% of people would pay from their savings, others would charge the expense to their credit card and pay over time, pay the bill and cut other costs, borrow from family or friends, or take out a personal loan.
Building a savings account is a significant financial planning and wellness component.
Do Not Fall Prey to Lifestyle Inflation
Lifestyle inflation occurs when an individual’s income increases, and so does their spending. For example, a person receives a raise at work and decides to move into a bigger apartment or get a new car.
Instead of adding newer or larger expenses, this increased income can instead focus on other financial priorities. Instead of creating more debt, individuals can use the extra funds to eliminate debt or save toward more significant purchases.
If a person’s lifestyle continues to change with their income, they are essentially increasing their cost of living, making the rise in income less significant.
Plan for Retirement
It is essential to plan for retirement as early as possible. This is because the earlier a person prepares for retirement, the more chance their money has to grow. Even small contributions have the potential to grow. Investing early gives the money more time to grow with the market and improves the chance for financial wellness even when a person is no longer working.
There are numerous avenues to plan for retirement. First are employer-sponsored 401(k) or 403(b) accounts. These are company-sponsored retirement plans where employees can contribute their pretax income to a retirement account. The employer generally matches employee contributions, and employees receive a tax break on their retirement savings.
Another option for retirement is an individual retirement account (IRA). IRAs allow individuals to contribute up to a certain amount allowed by the Internal Revenue Service (IRS). There are several different individual retirement account options. Individuals can choose which account to invest in based on the best choice for their circumstances.
The three most common individual retirement accounts include the following:
Traditional IRA: In a traditional IRA, individuals make contributions with money that they may be able to deduct from their tax returns. Additionally, earnings grow tax-deferred until they are withdrawn in retirement.
Roth IRA: A Roth IRA allows individuals to contribute to an account with money they have already paid taxes on. Money can grow tax-free and be withdrawn at retirement tax-free if certain conditions are met.
Rollover IRA: Rollover IRAs are accounts where money is “rolled over” from another retirement account. Funds do not necessarily have to come from another type of IRA—money can be rolled over from qualified 401(k) or 403(b) accounts.
Plan Major Purchases
A primary key to reaching financial wellness is to prepare for and plan major purchases. Impulsive purchases often lead to buyer’s remorse. With larger purchases, it might be more challenging to renege on a choice than it is to return a shirt to the store.
If planning a trip or buying a large ticket item, it is recommended to plan for these expenses in advance. Creating a savings account for a more significant purchase can help keep things in perspective. Creating a separate category for these purchases in the personal budget can make the final cost less impactful to one’s pockets.
Unfortunately, most people do not have the privilege to get up and go when they are ready. Whether it is a necessity like a refrigerator or a larger item like a house, preparing for the purchase will ease the pressure on a person’s finances.
Learn How to Use Credit Responsibly
Credit is simply the power to borrow money. However, credit is vital to every large purchase an individual makes in their lifetime. Lenders use credit scores to determine whether an individual is trustworthy or not. When it becomes time to purchase a house, apartment, or new car or to open a new business, credit is one of the many things that are being scrutinized.
A solid credit history can help individuals get better interest rates, easier approvals, and more flexibility. These benefits occur because a higher credit score shows there is little risk in lending to an individual.
Here are a few tips for using credit responsibly:
- Always make payments on time
- Do not spend more than you can afford to repay
- Do not close old accounts
- Use credit cards responsibly
- Keep credit utilization low
Handling one’s credit with care will only benefit a person’s financial wellness.
Create a Plan to Eliminate Debt
Debt is something that a lot of Americans deal with daily. Whether it is consumer debt or student loan debt, owing money can cause stress and hinder the chance of reaching other financial goals.
To achieve financial wellness, individuals must have a good handle on their debt-elimination plan. There are several ways to accomplish this goal. Some people are comfortable making scheduled payments until the debt is paid off, while others may want to pay off their debt faster to create some room in their budget.
No matter which method a person chooses, the best method is one that can be maintained.
Stay Up-to-Date on Financial Education
The best way to make smart financial decisions and achieve financial wellness is to educate yourself. There is a lot of information in books, online, and from qualified professionals that can help educate people on financial literacy.
Financial literacy can help people make the best decisions to support their goals. Budgeting, using credit responsibly, and saving are key components of financial literacy. Knowing how to do these things allows individuals to manage their finances effectively, have less financial stress, and have more positive outcomes in their financial wellness journeys.
Look Into Financial Wellness Programs
A financial wellness program aims to educate people about managing money and reducing financial stress. This can be beneficial to those who are new to the world of finance and want to achieve financial wellness.
A financial wellness program may include personal financial coaching and provide resources that help with credit building, budgeting, and tips on saving. Those who participate in financial wellness programs can receive help increasing their income and getting out of debt.
Learn More Tips for Financial Wellness With Wellavi!
If you are interested in achieving financial wellness, sign up for Wellavi. It can be challenging to learn about financial wellness on your own. Wellavi offers reliable tips and knowledge on how to achieve financial, professional, mental, and social wellness, and much more. Life happens. For this reason, Wellavi meets you where you are. Get access to expert coaches, programs, and resources to help you take control of your finances.
Signing up for Wellavi is easy. All you have to do is download the app, enter your information, and then take our simple TrueSelf assessment, which will help provide insight into your unique Six Dimensions of Wellness and match you with a selection of coaches and wellness programs that will work best for your needs. From there, your journey is yours to direct with ease, thanks to the Wellavi platform! So, let’s get started today!
