Do You Have Financial Wellness Down Pat? Here’s What You Need to Know This Holiday Season
What does financial health mean to you? Does it just sound like a fancier, sane term than “personal finance”? Or does financial wellness mean something completely different to you? You could think of financial wellbeing as a holistic approach to our finances, from eliminating credit card debt to building an emergency fund to saving for retirement. The sum of all these parts makes your money work for you.
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Financial health can be crucial during the holiday season. A sense of calm about your money can mean relaxing above everything else and actually enjoying the holidays.
Let’s go through a few simple steps that can help you along the path to financial wellbeing – however you define it.
How can you get financially healthy?
Just to give a definition of financial wellness, especially in the context of the holiday season, one can assume that financial wellness means that you have enough money to pay for your immediate expenses and to cover all emergencies in everyday life and also have enough money to live the lifestyle you want. Financial wellbeing also means being able to achieve your current and future goals.
The Consumer Financial Protection Bureau (CFPB) has a simple financial wellbeing scorecard worksheet that you can fill out to see how well you are financially. It includes questions that ask you to evaluate:
- Handling a major unexpected output: Can you cover monthly expenses with confidence, even if they are unexpected expenses or unexpected bills?
- Secure your financial future: Are you planning to save in the long term for retirement and other future expenses? In other words, do you have any plans for the future?
- Money management: Can you cover all the necessary expenses of daily life and still have money for other things that you want? Can you choose where to live, drive, eat and play activities because you are managing your money well?
Knowing how well you are doing in all of these categories can help you see how well you are managing your money on a broader basis.
How can financial wellness fit into your life?
What can financial wellbeing look like in your life, especially this Christmas season? Let’s see what that could mean in practice.
Tip 1: Have a stable and reliable income.
When you think of a stable and reliable income, it means that you have money that you can count on and that comes in reliably every two weeks, every week, every month. The question of a reliable income can also concern high earners or owners of their own business. If you own your own business but suddenly find that you are not bringing in as much this season as you usually do, it is time to reconsider your business strategy.
Tip 2: create a well-stocked emergency fund.
What would happen to you if your heating went out in mid-December (another North Dakota winter)? Or what if your car needs to be replaced? Could you pay for it? Experts recommend having an emergency fund with a total of three to six months of expenses. However, you may want to save more.
If you are making $ 50,000 a year, it means you would save at least $ 12,500 (for three months of spending) or $ 25,000 (for six months of spending). Save $ 50,000 on a really robust emergency fund – an annual salary.
Tip 3: Have a plan to eliminate debt.
You also want to look at your debt in the context of financial health.
By making a list of your debts and the amounts you owe, you will have a good idea of how to pay them off. (It’s easy to lose track of everything you owe, as well as the interest rates on each loan.) You may want to put together an actual debt settlement plan that may include additional payments on your high-interest loan every month. (Start with credit cards first !).
Tip 4: Keep an eye on retirement planning.
It’s no secret that Americans generally don’t save enough for retirement. In a US survey on Schroders’ retirement, respondents were asked how they rate their retirement planning to date. Only 27% of the respondents who are not retired said that they were “fully on the right track”. Only 18% of non-retired respondents between the ages of 60 and 67 said the same thing. 60% of the respondents said they did not have enough savings. Unfortunately, 14% didn’t know if they had enough savings to retire.
Whether you’re replenishing your retirement plan with an employer-sponsored 401 (k) plan or putting money into an IRA, you should have some form of retirement plan on hand. Keep these numbers in mind for how much you should have saved at each age:
- Age 30: Save your annual salary once.
- Age 40: Save three times your annual salary.
- Age 50: Save six times your annual salary.
- Age 60: Save eight times your annual salary.
- Age 67: Save 10 times your annual salary.
Always remember to pay yourself first and save money in your retirement fund the moment you get your paycheck. Make sure you have the right asset allocation for your individual future goals and risk tolerance.
Tip 4: Monitor Your Credit Report And Know Your Score.
Good credit (which is a three-digit number that shows how well you are paying off debt) can help you with a number of things. It can help you get a nicer place to live, get a mortgage approved, or even get a higher paying job (yes, some employers do credit checks!).
Financial wellbeing also includes knowing your credit history and monitoring your credit report, which you can do at annualcreditreport.com. If your score is low, there are steps you can take to increase it by paying your bills on time, fighting debt, and making sure you are using 30% or less of your available credit – also known as the loan utilization rate. You can also restrict your credit requests, which often results in a “hard” request that can temporarily affect your creditworthiness.
Tip 5: consider budgeting.
Create a budget if you think it will help you over the Christmas period and in the future. Find out how much money you have on your budget each month, then add up your fixed costs like mortgage payments and utilities. Then allocate the rest of your money to a job, be it entertainment, prescription medication, or your kid’s basketball shoes.
You can try using a budgeting app to streamline the process. A budgeting app can help you figure out where you’re overspending. Budgeting can really help you map out how much money you are going to be spending on each person in your family during the holiday season.
Take steps towards financial wellbeing this holiday season
Financial wellness in the context of the Christmas season: At first glance, you might think that you won’t have enough time until the end of the year to bring your finances into shape. However, you will be surprised at how quickly you can flip through your paychecks, get a grip on your expenses, and set your budget.
Give yourself a sense of peace as you head into the Christmas season (and New Year) by making sure you are financially safe. It’s a great gift to give to yourself.