Even if you don’t have all of your financial ducks in a row, so to speak, you probably know at least some of the best practices for managing your money. Think back on what a parent, grandparent or well-meaning teacher once told you and you’ll likely recall advice like, “Avoid spending beyond your means” or “Put some money aside for a rainy day.” While those bits of wisdom may have fallen on deaf ears back then, things look different now that you’re in control of your financial future. And while no one would disagree about financial wellness being a good thing, it can seem difficult to achieve it. And it can be — if you don’t have an actionable plan.
To help on your journey, GOBankingRates has done the legwork for you — or at least enough to get you motivated to seek out the path to financial wellness. Check out these 10 easy steps from the mouths of experts.
Last updated: April 6, 2021
Determine Your Financial Goals
Setting financial goals is a key first step to beginning your journey to financial wellness. Hugh Baker, certified financial planner and owner of the blog Up2DateFinance, had this advice when creating your financial goals with your significant other:
“Write down the three or four things most important to you, but don’t talk about it or share them with each other until you’re done,” Baker said. “It’s important to do it this way so neither one of you takes the easy route and agrees to the other’s priorities. Then, compare your answers and talk about why it’s important to you. You might learn something you didn’t know about them in the process.”
Baker also recommends agreeing on a “we should talk about it first” dollar limit for big purchases, which can help keep financial goals on track. “This a great way to set clear expectations and avoid relationship stress related to money,” he said.
Know What’s Going On With Your Money
Creating your financial goals is a necessary step, but those goals will never come to fruition if you don’t know what’s going on with your money.
“Your starting point is knowing how much money is coming in, how much money is going out and how much money is left,” said Hussein Yahfoufi, co-founder of Money Minx. “The best way to get ahead of this is to allocate money after you received it — not before — and give every dollar you have a purpose. The key here is that you are budgeting with money you have, not money you expect to have in the future. You can use a tool like YNAB to help with this process.”
Set Up a Plan To Pay Off Debt
Build an Emergency Fund
Scott Schleicher, financial planning specialist group manager and senior financial advisor at Personal Capital, an Empower Company, recommends having a solid emergency fund as part of a plan to achieve financial wellness.
Prioritize Retirement Savings and Investments
You don’t want to reach your golden years and discover that you don’t have enough money to comfortably retire. Now is the time to start bankrolling that nest egg.
“If your employer offers a retirement savings plan, definitely enroll and contribute as much as you can,” said Syed Nishat, a financial advisor with Wall Street Alliance Group. “Learn the details of your plan so you can take advantage of maximizing company matches, understand how long you’ll need to stay in the plan to be able to get all of the money and use automatic deductions from your paycheck to simplify the process. Overall, you’ll lower your taxes, and the compound interest in your plan will make your investments really give back over time.”
Use Automatic Payments When Possible
“Many people end up paying far more on interest and late fees than they realize,” said debt and consumer finance expert Sean Fox, president of Freedom Debt Relief in San Mateo, California. “It can add up and derail savings goals for the things they really want to do and purchase.”
“Online bill payment, often offered free today at consumers’ banks or credit unions, can be set up to pay multiple monthly bills (utilities, phone, etc.),” Fox said. “Many utility, mortgage and other companies now permit automatic deduction plans where they will withdraw funds directly from your bank account. Some lenders and utility companies will provide a reduced interest rate or other rebates for use of their automated payment services.
“Remember that savings is a mandatory “bill” you pay yourself. To that end, you can often also set up self-billing for savings with your bank or credit unions, where they automatically transfer money from a checking to a savings account. Alternatively, your employer may offer automatic deposit to a designated savings account.”
Improve Your Credit Score
“Your credit score reflects your financial reputation as a borrower, so by improving that score, you can unlock better loan rates and terms in the future,” said Valerie Moses, senior relationship manager for Addition Financial. “Your payment history makes up 35% of your credit score, playing the biggest role in determining whether creditors will lend to you. The best way to build and improve your credit score over time is to pay your bills on time, every time. The amount owed makes up 30% of your credit score, so if you can afford to do so, try to pay your bills in full and avoid carrying a balance whenever possible. This will not only help your credit score, but will also save you money on interest payments in the long run.”
Look For Ways To Save on Expenses
All kinds of ways exist to save on expenses, but avoiding lifestyle creep can save you a ton of money in the long run. “Lifestyle creep, sometimes called lifestyle inflation, happens when you up your lifestyle to match an increase in income,” said Lauren Anastasio, certified financial planner at SoFi.
“As you progress through your career in your twenties and begin to get raises and earn additional income, it can be tempting to use the extra money as “fun money” that doesn’t have to be budgeted. But spending your extra money on nonessential items can quickly add up and prevent you from achieving future financial goals. Recognizing and mitigating lifestyle creep in your own life can lead to better budgeting and decisions.”
Ask For Professional Advice
“When we get sick we go to the doctor,” said Robert R. Johnson, Ph.D., CFA, CAIA and professor of finance, Heider College of Business, Creighton University. “When we get into legal trouble we hire a lawyer. Yet, somehow people believe that they should be able to navigate the ever increasingly perilous financial waters without professional help.”
While seeking professional financial advice is a wise move, not all financial advisors are equal, according to Johnson.
“When searching for a financial advisor, one should only consider individuals who have earned well-recognized financial credentials such as a chartered financial analyst (CFA) or certified financial planner (CFP),” Johnson said. “These individuals have mastered a complex body of knowledge, have passed a comprehensive examination (or in the case of a CFA charterholder, a series of examinations) and agree to abide by a code of ethics. The individual must be a fiduciary – that is, put their clients’ interests first. If a potential financial advisor is not a fiduciary, look elsewhere. In fact, if a financial advisor isn’t a fiduciary, run away!”
Keep Tabs on Your Progress
Brendan Dooley, certified financial planner and president and founder of Meaningful Wealth Management LLC, believes monitoring your progress toward your financial goals is crucial to your success.
“Eventually, with some dedication, you’re going to make progress,” Dooley said. “So how will you know when to move the goalpost and get more aggressive with your goals? Professional advice can go a long way towards making sure you’re not stagnating. If there’s even a chance that you feel like there’s more you could or should do, hire someone to challenge you and point out opportunities. If you won’t hire someone, put dates on your calendar to conduct a thorough review of your goals and progress every six months.”