Personal Finance Insights

5 Steps to Financial Wellness

Everyone knows the importance of good health. When you’re physically fit, mentally sound and emotionally fulfilled, you’re more likely to lead a rewarding and satisfying life.

But how much effort do you put toward financial wellness? Having strong finances allows you to afford the necessities of life and may also contribute to your physical, mental and emotional health. Of course, it’s unwise to obsess over money, but having financial security does help provide a greater sense of confidence and optimism for the future.

Some people are confused by financial matters or even intimidated by money management responsibilities. It doesn’t have to be that way. Here are five steps to improving your financial wellness. You may encounter bumps along the way, but the long-term results should be worth your effort.

Step 1: Gaining financial literacy

It’s valuable to become familiar with basic financial concepts. Actions such as budgeting, managing debt, saving and investing—which, coincidentally, will be our remaining four steps!—are crucial to attaining financial wellness. With good financial literacy, you’ll understand these terms and be able to apply the knowledge to your own circumstances.

  • Budgeting is the exercise of matching up your income with your expenses over a given timeframe (e.g., monthly).
  • Managing debt is important because the cost of servicing this debt (especially when rates are high) can affect financial wellness. 
  • Saving seems obvious, but it’s not always easy to do. Two ways to save better are earning more income and spending less money.
  • Investing is often integral to financial wellness because it gives your money an opportunity to grow, so you can build wealth.

Of course, you should learn about other terms to boost your financial literacy—books, websites and courses may be useful—but these four are a great place to start.

Step 2: Budgeting

When budgeting, be honest with yourself and give it enough thought so you don’t miss any sources of income or expenditures. Compiling your income and expenses will result in a personal “balance sheet” that’ll show whether you’re in a positive or negative position each month (i.e., are you building wealth or accumulating debt?). When you lay out a budget, any unnecessary costs become apparent, such as unused subscriptions and memberships, or bank fees for accounts you no longer use. Budgeting is a good opportunity to evaluate and streamline your expenses.

Step 3: Managing debt

Try to keep debt levels reasonable by curbing discretionary expenses and living within your means. Although it’s tempting to elevate your lifestyle and buy things you want but don’t need, debt adds up quickly. It’s also hard to ratchet down your lifestyle once you’ve raised it. Today’s high inflation and high interest rates could jeopardize your financial health. With existing debt, many people first tackle the debt with the highest interest rate, which should have the biggest impact on reducing the amount of interest paid. You can also negotiate with the lending institution(s) and try to lower the rate they charge. Your goal is to cut overall debt and bolster the health of your personal balance sheet.

Step 4: Saving

While saving helps build a strong future, it’s also relevant for short-term needs. For instance, everyone should have an emergency fund because, as the saying goes, you must expect the unexpected. What happens if you lose your job or need urgent vehicle or furnace repairs? Without an emergency fund, which typically covers at least three to six months of expenses, you might be hard pressed to access cash quickly. Implementing a regular plan is a good way to save. You could automatically designate 10% of monthly income (for example) to a high-interest savings account or something similar. The money that accumulates over time will enhance your financial wellness.

Step 5: Investing

Most people strive to grow their wealth to help cover larger expenses, such as buying a home, putting kids through school and retirement. A proven way to achieve long-term growth is investing in securities like stocks, bonds, mutual funds and exchange-traded funds. Making pre-authorized contributions (PAC) is a common strategy that simplifies the process and encourages regular investing. With PACs, you allocate a set dollar value each month (or whatever time period) to invest. This instills discipline and ensures you devote a steady amount of money to building wealth, instead of potentially squandering it on unessential purchases.

Although these five steps to financial wellness are fairly straightforward, it doesn’t mean they’re easy. If they were, everyone would be wealthy! Don’t hesitate to reach out for support if you feel overwhelmed. Experienced industry professionals can develop a sound financial plan and assist with complex financial planning scenarios.

Nobody can tell the future, but we can help you plan for yours.