Seven in 10 Americans struggle with some aspect of financial stability, whether it be starting a savings account, managing bill payments or curbing spending habits. A 2017 survey from Bankrate revealed more than half of Americans don’t have enough money saved up to cover a $500 expense. For many people, that means unanticipated car repairs, unexpected medical bills or major housing repairs could be enough to put them over the edge financially.
It’s important to note the constant stress of an insecure financial situation can really take a toll on other areas of one’s life. “Studies have shown that employees who are struggling with their finances are less productive at work,” explained Jean Elias, vice president of marketing at Consumer Education Services Inc., a Raleigh-based nonprofit credit counseling agency. “Financial stress often leads to physical and emotional stress that can ultimately have a negative impact on health. When you’re wondering how you’re going to pay your rent or your mortgage, it affects many areas of your life, including the choices you make.”
While many people allow finances to control their life choices, it is possible to take back control and pave the way for financial health. The following five tips can help individuals practice financial wellness and prepare them for the challenges life may throw their way, while also maintaining financial stability.
1. Understand Where You Are Now and Where You Want to Be
An excellent first step to establishing financial wellness is to set clear, measurable financial goals.
According to Elias, one of the most effective places to start is to pick one specific longer-term financial goal you want to accomplish (homeownership, debt reduction, et cetera) and focus your short-term actions toward the realization of that goal.
When it comes to financial health, this means it’s important to understand your cash flow and your savings before you begin.
“At CESI, we help people establish a financial baseline by walking them through the creation of a budget and action plan,” said Mike Croxson, CEO of CESI. “We understand some people may feel uncomfortable talking about their finances and they would rather try to figure it out on their own. The key is to provide the consumer with options that can help them; and at CESI, we do just that.”
2. Know What You Owe
A key aspect to achieving financial health is tracking exactly how much you owe. One of the best ways to do this is by accessing your credit report to get a clearer understanding of the whole picture.
Resources like annualcreditreport.com can help with this at no cost. For those in need of a little more guidance, CESI offers access to financial counselors who can review debt and credit information and talk over exactly what the numbers mean.
“CESI offers a free financial assessment in which credit counselors who have been trained and certified by the National Foundation for Credit Counseling are able to go over the whole financial picture, discuss goals, and then help people walk through a process of addressing their debt,” Elias explained. “A lot of times, people feel stress and anxiety about their overall debt picture. They may have multiple sources of debt weighing on them. It’s important to lay everything out and understand the whole picture so you can get clarity and create a plan for success.”
Knowing your total debt will also allow you to calculate your debt-to-income ratio, which will paint a clearer picture of how much money from your total income actually needs to be set aside to contribute to debt reduction.