You’ve probably heard about ways you can improve your physical wellness, but what about your financial wellness? Financial wellness involves meeting current and ongoing financial obligations while feeling secure about your financial future. At iTHINK Financial, the goal of true wellness is to enjoy life now and remain financially stable in the future.
You don’t have to be a top-earner to enjoy financial freedom — you can create financial stability and earn this freedom no matter what your salary is by developing your financial literacy and learning a few good habits. Keep reading to learn more about seven money management tips that can help you achieve the financial wellness you’ve been looking for in 2023.
Financial Wellness and Your Life
There is an established link between financial wellness and mental health. Financial stress is often chronic and a leading cause of stress among adults. Financial wellness can also affect physical health, as pressure from financial stress can cause headaches, migraines, a weakened immune system, hypertension, digestive problems, and issues with sleep.
Financial stress may be caused by excessive debt, the inability to meet basic living expenses, a lack of solutions for financial issues, and the economic climate, such as inflation and increased cost of living. Achieving financial wellness can alleviate stress and provide security for the future, helping you improve your mental and physical health as you build financial stability.
1. Create and Use A Budget
Establishing a budget is the cornerstone of personal financial planning. A budget serves as your playbook to keep spending within certain limits, allowing you to set long-term goals. When used correctly, a budget can reveal areas where you can spend less and save more, prevent overspending, and empower you to make significant strides toward your financial goals.
The basics of creating a budget include documenting how much money you make and how much you spend. Creating this budget gives you an opportunity to map out your spending habits, allowing you to adjust your spending choices where necessary.
2. Automate Savings
Automated saving is a low-stress approach to building your savings account. The process involves setting up automatic transfers from your checking to your savings on a recurring schedule based on your paycheck deposits. Automated savings can be set up through your credit union, or some employers allow a portion of your pay to be directly deposited into a savings account.
Savings accounts are critical for financial well-being. Most Americans have a savings account; however, 58% of Americans' savings accounts hold less than $5,000. Setting up an automated savings transfer makes the process seamless.
3. Build an Emergency Fund
Emergency funds and savings accounts feel similar but have significant differences in purpose. Savings accounts are meant to build a cash cushion and create savings and investments for the future, including paying college tuition, purchasing property, or retirement savings. In contrast, an emergency fund is meant to help cover unforeseen expenses such as medical expenses, home repairs, major vehicle repairs, or unemployment.
Savings accounts are a proactive way to plan for the future and give yourself long-term financial stability. In contrast, emergency savings are set aside to be available when reactive finances are needed and supply you with peace of mind even when things don’t go to plan.
4. Pay Off and Manage Debt
Debt management involves paying off your previous debt and making on-time payments to avoid late fees and improve credit scores. Top tips for paying off debt include paying off the smallest debts first. While tackling smaller debt first may not seem like it makes as big of an impact as paying off the larger sums, it is a well-established strategy often called a "debt snowball" approach. By paying off small debts quickly, you free up cash to put toward more significant debts and gain momentum in your efforts to pay off your debts.
Debt can be an intimidating barrier to reaching financial life goals — the average American has over $23,000 in debt outside of home mortgages. Paying off high-interest debts saves money in the long run because by doing so, you avoid paying more interest over time. Excessive debt adds to financial stress and can affect mental and physical health. Poor health, either mental or physical, can lead to more spending and debt accumulation, so paying off or paying down debts to a manageable level should be your top priority.
5. Plan for Major Purchases and Spending
You can plan for major purchases, such as vacationing or purchasing appliances or new vehicles. If you are planning on making one of these purchases, you should proactively make budget adjustments, allocate more to your savings, and use your lines of credit wisely to responsibly account for big-ticket items or events.
Major purchase spending is above and beyond existing savings; these items or events should be covered using intentional budgeting and prioritization when working toward financial goals. Planning appropriately for major purchases or spending helps you navigate your finances with confidence and control. Withproper financial planning in place, you can make major purchases without derailing your progress.
6. Set Clear Goals
Setting realistic, clear financial goals is vital in achieving financial wellness. These goals can help give you direction and purpose in your financial life by influencing priorities, providing measurable indicators of your progress, and allowing you to make well-informed financial decisions about your long-term financial goals.
Your financial goals should include both short-term and long-term goals. Short-term financial goals are essential to goal-setting because they give you a foundation and build confidence to help you achieve bigger, long-term goals. Short-term goals may include building an emergency fund or paying off small debts. Longer-term goals could consist of investments in retirement savings and larger purchases.
7. Ask for Help
It is crucial to ask for financial advice to help you achieve short and long-term financial goals. There are many factors affecting personal finance today — the cost of living increases, inflation, and the threat of recession make financial planning more important and complicated for the average household. Seeking advice from a financial professional will help you realistically evaluate your finances and develop a plan allowing you to enjoy your life while you plan for your future.
Bonus Tip: Manage Your Credit Score
Credit scores and financial wellness are intricately linked. Credit scores are determined by payment history, amount of debt owed to a creditor, new credit applications, credit history, and your credit mix.
Credit scores serve as a report card of your credit health. Your score affects your financial wellness because a lower score may limit access to credit, determine higher or lower interest rates on loans, affect employment opportunities, and influence insurance premiums. A higher credit score indicates financial confidence for banks, employers, and businesses as they decide to do business with you. Essentially, a higher credit score reflects financial responsibility to potential lenders.
Assessing your credit score and working to improve your score is an important part of elevating your financial wellness. The best ways to improve your score include on-time payments, paying down credit balances, and consolidating debt.
Find a Credit Union That’s in Your Corner
iTHINK Financial Credit Union wants to help you successfully approach your financial goals in 2023. Contact iTHINK Financial today so we can begin the process of helping you achieve your goals!
