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Your Financial Wellness Checklist
January is Financial Wellness month! As we are all coming off a busy spending season and entering a new year, now is a great time to review your current financial situation and set some new goals to improve your financial well-being!
In this post I will share what financial wellness is, how to assess your current financial situation and provide tips that you can work on this year!
What is Financial Wellness?
The Financial Educators Council defines financial wellness as “effectively managing your economic life.” The pieces of your economic life include budgeting, eliminating debt, short-term savings and long term savings and investments.
How well you are managing those things will determine your financial peace and money confidence.
Benefits of Financial Wellness
Having financial well-being goes beyond just managing money. The peace and confidence you have about your money (or lack thereof) affects other areas of your life.
Your financial life can affect your job, relationships, mental and physical health.
Ramsey Solutions did a study in Q2 of 2023 about the State of Personal Finance in America. Here are some of the results they found:
- 54% of Americans are afraid they can’t cover their monthly expenses.
- 49% of Americans said their finances had a negative impact on their mental health with 2 out of 5 Americans experiencing anxiety attacks over money stress.
- 33% of Americans do not have $1,000 in savings for emergencies.
- 79% of Americans with student loan debt are worried how payments will impact their budgets.
Those are some alarming numbers on our society’s confidence level in their financial well-being!
In addition, money stress is the number 1 cause of divorces.
As you can see, taking an active approach to your financial wellness can greatly improve your overall life.
Below are some tips to improve your financial health!
Assessing Financial Wellness
Before you can improve your financial situation you must know where you are at currently. Your net worth and credit report are 2 key areas you can review. These are not the only things that assess financial wellness, since it is more than just the numbers.
You can’t improve something if you don’t know where you are at currently. Having an accurate snapshot of where you are is a good place to start.
Calculate Net Worth
Your net worth equals your assets minus liabilities (debts).
Net Worth = Assets – Liabilities
Assets include money in checking and savings, retirement accounts, non retirement investments, the market value of your home, market value of your vehicles, business assets and any other personal belongings that have value (like jewelry and antiques).
Liabilities include credit card debt, personal loans, student loans, mortgage, car loans, medical bills, business loans and HELOC.
You can use this net worth calculator for easy calculations.
Review Credit Report and Score
If you have any kind of loans or credit cards you will have a credit score (FICO) and a credit report.
The FICO score is one type of calculation creditors use to determine the likelihood that you will pay back money that you borrow.
Your credit score is a factor in what kind of interest rate you will receive if you take out a loan.
Our society loves to tell you that you should always work on improving your FICO score. But as I explain in the blog post, “Do You Need a FICO Score?” It is not a good indicator of financial wellness. It only indicates how much you love debt.
Your credit report will list all the debts you currently have and past debts. TransUnion, Equifax and Experian are 3 credit reporting agencies. You should review your credit report once a year to make sure it’s accurate and that scammers aren’t taking out loans in your name. You can get a free credit report here.
Ways to Improve Your Financial Wellness
Now that you have a good snapshot of your numbers with your net worth and credit reports, here are ways you can improve your financial well-being.
Expand Your Personal Finance Knowledge
Unfortunately personal finance is not taught enough in schools. So most of us are left with what we learn from our parents or other adults.
And your parents are teaching you what they learned from their parents. Sometimes it’s not always the best advice.
If you want to learn how to get out of debt, learn from someone who got out of debt. Don’t listen to your broke uncle.
There are a lot of resources available so to help you narrow it down I suggest following Dave Ramsey. Ramsey Solutions has books, classes and Podcasts to help you at every step of your finance journey.
Resources to expand your personal finance knowledge:
* Read a personal finance book
* Podcasts
* Financial Peace University class
Set Financial Goals
“A goal without a plan is only a dream,” says Brian Tracy (motivational speaker and author).
Setting short-term and long-term financial goals is the first step to turning your financial dreams into a reality.
Goals help you develop a plan with a timeline.
Setting Financial Goals Action Step:
* Learn How to Set Short-Term Financial Goals
* Use a Financial Goals Tracker to help you stay focused and visualize your progress.
Work on Your Money Mindset
This may come to a surprise to you but handling money isn’t all that hard. Most of the time we get in trouble because of our own thoughts, feelings and behaviors we have around money.
Improving your mindset around money will help you around all the other important aspects of financial wellness.
Understanding your own mindset and why you handle the money the way you do is a good start. In Rachel Cruze’s book, “Know Yourself, Know Your Money” she talks about the 7 natural money tendencies we all have. She provides tips for healthy money management for each money tendency.
Writing down inspirational quotes about money and journaling your thoughts around money can also be a great way to continually improving your money mindset.
Money Mindset Action Steps:
* Read “Know Yourself Know Yourself, Know Your Money: Discover Why You Handle Money The Way You Do and What To Do About It” by Rachel Cruze
* Find financial wellness quotes on Pinterest, save them to your board and/or write them where you will see them every day.
Budget
Creating a written money plan each month is the foundation to everything else you want to accomplish with your financial wellness.
A zero-based budget shows you exactly how much money you are spending and how much you have to save and pay off debt. It will also help you get out of that paycheck-to-paycheck cycle.
Budget Action Step:
* Make your first budget in this awesome (free) budgeting app!
Short-Term and Long-Term Savings
Having various short term and long term savings plans help you stay out of debt, break the paycheck to paycheck cycle and build a stable future.
Emergency Fund, sinking funds, college savings, retirement and other investments are all types of savings plans you may have.
An emergency fund provides a safety net for those unexpected expenses. If you do not have any emergency savings, your first goal should be saving $1,000 in a starter emergency fund as quickly as possible. Eventually you will want to grow that to 3 to 6 months of living expenses.
Sinking funds are for specific savings goals, such as a new vehicle, Christmas, downpayment on a house, house projects, furniture, etc. They are for larger expenses that you plan ahead for instead of going into debt.
If you plan to go to college or have kids that may go to college someday then you may want to think about a 529 college savings account. 529’s are investment plans for educational expenses overseen by the treasury department of your state. You can easily set one up online with your state’s specific plan.
Pay Off Debt
One of the biggest money stressors we carry is around debt. As I said before, the education around debt has not helped anyone.
The narrative has been “take on debt and help your credit score”. But that has just left people worried over their ability to make payments.
Relieve that burden and make it your goal to pay off your debt as fast as you can. Believe me, your financial health will feel great as you knock off your loans one by one!
Focus on your consumer debt first before tackling the mortgage.
Pay Off Debt Action Step:
* List all your debts from smallest to largest balance
* Use the debt snowball to pay off those debts once and for all!
Protecting Your Assets with Insurance
You probably don’t automatically think about insurance when it comes to financial wellness but it should be an important piece of your plan.
Having the right amount of insurance protects your assets. By the right amount I mean you want your policy to cover the replacement of lost assets while not overpaying on premiums.
Review your policies once a year to make sure you are appropriately covered and have a good rate. If you’re not happy with the coverage or rate, talk to your insurance agent.
If you feel that you are paying too much and your current insurance provider won’t help, then shop around for another insurance provider is possible.
Types of Insurance You Should Review:
* Medical
* Dental
* Vision
* Home/Renters
* Vehicle (including ATV’s, boats, campers, etc.)
* Long Term Care Insurance
* Life Insurance
* Disability Insurance
* Identity Theft
Get Help
I know it can sometimes be hard to ask for help but having people help you with your financial goals is a sign of strength and courage. Having an accountability partner or having someone guide you in a topic you’re not familiar with will advance you much faster than doing it yourself.
An accountability partner can help you keep in check with your goals.
Working with a financial coach can help you with your money mindset, develop and stick to a budget, set goals, make a debt payoff plan and help you work with your spouse.
A financial advisor can help you navigate investments and retirement plans.
Conclusion
As you can see, there are several factors that go into financial wellness. From budgeting to making plans for the future, it all ties into your financial health. But don’t let that scare you! You do not have to do everything right now.
Use my free Financial Wellness Checklist to work on these items throughout the year and go back to it again the following year to see how far you have come and what you can work on next.
