Financial health helps you leverage skills and opportunities to harness new monetary advantages. Maintaining complete visibility of your finances is the best way to reach them. Let’s dive into why financial wellness is so important—and how you can improve your monetary health today.
If you want to be physically healthy, you have to work towards it. You must eat right, exercise regularly, and communicate with your doctor. You could easily say the same about financial health and wellness.
Financial health helps you leverage skills and opportunities to harness new monetary advantages. Understanding where you stand financially is vital to future decision-making. How much money do you have coming in? Are you budgeting effectively? Are you on pace to meet your goals?
Let’s dive into why financial wellness is so important—and how you can improve your monetary health today.
Why Is Financial Wellness Important?
Managing your money can be stressful. That stress can find its way into other aspects of your life, including your job, family, and relationships.
One of the primary reasons why financial wellness is important is that it can lower stress levels. That’s why so many employers are beginning to offer financial wellness programs as part of their employee benefits packages.
Financial wellness equips you with the skills necessary to manage your money effectively, such as expense management and setting budgets. Both open the door to financial responsibility and independence.
Such practices don't come so easily to everyone. If you’re struggling with financial wellness, explore educational avenues to help you build a better relationship with your money. You don’t have to attend some far-off seminar either. Consider using a budgeting app or working with a local financial partner.
Consider setting the following milestone goals to help get your financial wellness plan off the ground:
- Securing sustainable income
- Opening a savings account and starting to save for emergencies (loss of employment, poor health, natural disaster)
- Setting long-term financial goals such as buying a home, paying off debt, or building a robust retirement portfolio
Developing a Sustainable Income
You can’t take steps toward financial wellness if you don’t have money coming in. More importantly, you need sustainable income streams to keep your goals on track.
Sustainable income refers to the money you make steadily and consistently. That income is also likely to continue. For example, your salary is sustainable income. Winning the lottery or your Super Bowl bet is not. Long-term investments also count as sustainable income, assuming they’re growing consistently.
Developing sustainable income goes a long way in retirement planning. Your future social security payments count as sustainable income, but they may not be enough. We’re also living much longer than we give ourselves credit for.
There’s a good chance a healthy 65-year-old man may live to be 95. As such, he’ll need sustainable income beyond social security to enjoy a long retirement.
During your working years, consider sticking to a percentage budgeting rule. Two popular options are 50/15/5 and 50/30/20. Both allocate take-home pay (after taxes) toward essentials, savings, and recreation.
By following 50/15/5, you’ll allocate:
- 50% to essentials like housing, food, utilities, transportation, healthcare, and childcare
- 15% to retirement savings
- 5% to your emergency/rainy day fund
- You can do as you please with the remaining 30%
On the other hand, 50/30/20 allocates:
- 50% to essentials
- 30% to wants
- 20% to retirement savings and debt repayment
You could break your “wants” down further by saving more for retirement, your emergency fund, or whatever you please. In both cases, you can play with 30% of your money to fund whatever’s most important to you. Invest it, save it, spend it—it’s your choice.
Living Beyond Your Means Is a Problem
Credit cards make it easier to buy things than ever before. However, they also lead to a slippery slope of living well beyond your means.
Spending more money than you’re bringing in is a surefire way to dig yourself into a monetary hole. Paying attention to your financial wellness will show you where you're hemorrhaging money in areas where you could be saving.
Living beyond your means can also damage your credit score. Credit bureaus look at credit utilization—your available credit compared to how much you've used—to determine your risk profile.
For example, if you have $30,000 in credit and are currently using $25,000, they’d see you as risky. This makes it harder to take out new loans, pay off existing debt, and attain your financial goals.
Ask yourself the following questions to see if you’re living within your means.
Are You Carrying Credit Card Debt Month–to–Month?
Carrying too much debt can lead to hundreds of dollars in interest payments. Stop using the card until it’s paid in full. Pay off your credit card debt before the next cycle if you can. That way, you can reap the rewards without paying interest.
Are Bills Stressing You Out?
Water, oil, electricity, and WiFi are essential. If you’re stressed about paying these bills, it might be time to cut spending elsewhere.
Can You Save at Least 5% Of Your Monthly Income?
General guidance will tell you to save 20% of your income every month. If that’s too much, 5% will still help pad your retirement fund. If you can’t do that, it’s time to reassess how you earn and spend your money.
Is Your Mortgage or Rent More Than 30% Of Your Income?
If more than 30% of your take-home pay goes toward monthly mortgage/rent payments, you might be in over your head.
Long-Term Financial Goals Are a Must
You can’t go back in time. Neglecting to set financial goals now will have severe ramifications in the future. By then, it might be too late to correct it.
“Long-term” refers to the goals you hope to accomplish more than five years into the future. If you’re starting out, these could include saving up for a car or house. If you’re in the middle of your career, you’re probably considering retirement.
Most people like having a high net worth and not worrying about money. But what is that target amount? Instead of simply shooting for the stars, aim for a specific number.
Let’s say one of your long-term goals is building an emergency fund. Try creating short-term goals that’ll help you along the way. These may include setting and sticking to a monthly budget, paying down other debts, and saving more than 20% of your monthly income.
Now Is the Time to Start Working On Your Financial Wellness
Financial wellness is the key to attaining your monetary goals. Maintaining complete visibility of your finances is the best way to reach them. Earning, budgeting, and saving are the keys to a healthy financial future.
But wielding those keys is no easy task. Thankfully, you can lean on a trusted financial partner like Illinois Bank & Trust, a division of HTLF Bank to help navigate new business trends.
Get in touch with Illinois Bank & Trust, a division of HTLF Bank today to speak with a wealth advisor with deep industry insight. Together, you can unpack why financial wellness is so important to finding success in today’s world.
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Wealth Management does not provide accounting, legal or tax advice. This information discusses general economic and market activity and is presented for informational purposes only and should not be construed as investment advice. Views and opinions expressed herein do not account for any specific investment objective, restrictions, and/or financial circumstances of any specific client. The views and strategies described may not be suitable for all investors. Investors are urged to consult with their financial advisors before buying or selling any securities.