Today, May 17, 2021, is the extended tax deadline. Whether you just filed or did it in April, you now have your annual income figures at your fingertips — making it easier to see your financial big picture.
Why financial wellness is important
The obvious answer is that it takes many aggravations out of your life. Collections phone calls, sky-high interest rates on loans and credit cards, and being turned down for a job or an apartment because of a bad credit score, to name just a few.
Good financial health adds benefits to your life as well. It enables you to pay for unexpected emergencies, achieve your long-term goals such as a college education for your child, and enjoy a comfortable retirement.
How to do a financial wellness check
These 5 steps will give you an idea of where you stand now, and where you might need to improve.
Step 1: Compare money coming in vs. money going out.
We suggest you do your calculations based on a monthly average: 1 month’s rent, food, etc. For things you pay less often, such as a 6-month car insurance premium, divide by the number of months (6 in this example) to get the monthly expense.
Add up all your sources of income: wages/tips, alimony, unemployment/disability benefits, dividends from investments, etc. Then add up everything you spend on: housing (rent, mortgage, repairs), food, utilities, debt payments (credit cards, student loan, car loan) transportation (gas, transit fares, parking), medical costs, entertainment, gifts, personal (clothing, hair care, gym), and savings (401K, IRA, college fund).
Ideally, your income number should be more than your outgo number — or at least they should be the same. If you are spending more than you make, something has to be done.
Step 2: Learn to tell the difference between needs vs. wants.
This will often be the first place to look if you find that you need to cut back on expenses. Having clothes is a need; a closet stuffed full of trendy items is a want. A car is a need; a top-of-the-line model is a want.
Spending mindfully will also help cut down on your credit card debt — the single biggest source of financial headaches in America. In fact, most financial planners recommend that you pay off high interest debt before anything else, even if you have to really scrimp to do it.
Step 3: Control “lifestyle inflation.”
Once you realize that you have money left over at the end of the month, there’s a real danger that you will go out and blow it all on fun stuff. And the cycle continues — the more money you make, the more you spend. Even millionaires fall into this trap.
Of course, you should have a few more luxuries. But not to the extent that you are still living on the edge of being ruined when something goes wrong (such as a pandemic layoff).
A better idea is to have a plan for what you will do with the extra money. Maybe you will put it aside for a big purchase you’ve always dreamed of, such as a trip around the world. Or you might decide to hire a housecleaner so you can spend more quality time with family. The idea is to make your money bring greater rewards than impulse purchases of status items that will just go out of style and lose all their value in a few months anyway.
Step 4: Start a savings plan.
Opinions vary as to whether this is a need or a want. Of course, it doesn’t compare to having food on the table tonight; but it could be what puts food on your table after you retire.
A general rule of thumb is to put 10% of your income into retirement savings. This may not be doable for everybody; but if you start when you’re young, even a little bit each month will add up to 6 figures in the bank by the time you retire.
Step 5: Create an emergency fund.
This is different from retirement savings plans such as 401Ks or IRAs, which will penalize you if you withdraw money early. An emergency fund is one you can access at any time when life throws you a curve ball: you lose your job, the car breaks down, your pet gets sick. Having that cash to draw on is priceless in terms of peace of mind; plus it will save you from losing hundreds or thousands of dollars in interest to the payday loan place.
Speaking of avoiding the payday loaners, did you know that Integrity has a PayActiv program that lets you access your wages as soon as you earn them? No need to wait for payday, or get a loan because a bill needs to be paid immediately.
PayActiv has other benefits, too, such as the ability direct pay bills and Uber rides from the app, budgeting/financial planning tools, and discounts on prescription medicines. Learn how to sign up here.
