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The Path to Financial Wellness

By Jeff Sobieralski, Director of Wellness and Financial Wellbeing, Teachers Credit Union

Jeff Sobieralski, Director of Wellness and Financial Wellbeing, Teachers Credit Union

Anyone can achieve financial wellness, but they need to understand how to reach that goal. It can feel like a challenge to pay off debt, plan for emergencies, save for college expenses, and retirement—especially in difficult economic times like these.

Developing a few sound habits can put financial security within anyone’s reach. Here’s how to get there:

Use a Budget

Track your income and spending to establish financial goals based on the facts, rather than guesstimates. Developing a budget based on your monthly income, expenses, and savings is the first step to living within your means and building a cushion for the future.

The popular 50/30/20 budget has been useful for my family. In it, you spend roughly 50 percent of your after-tax dollars on necessities, no more than 30 percent on “wants,” and put at least 20 percent into savings or paying off debts. Following such a budget plan will reduce debt, sock away funds for unexpected expenses, and keep occasional indulgences within reach.

Be Aware of How You Spend Your Money

Review your purchases and adjust or eliminate what does not align with your budget. Even modest spending can add up, which is why it’s essential to track where your money goes. For example, people ages 35-44 spend $1,410 a year on coffee. Imagine the impact of reducing that expense and using the money instead to pay down credit card debt, student loans, or car payments. Daily coffee or frequent one-click online purchases, small as they might seem in the moment, amount to significant expenses that could be applied to more critical priorities.

Treat Your Savings like Any Other Bill

I like to “trick” myself into saving money. One of my best tricks is the zero-sum budget, which, in effect, hides some of my money from me every month. In a zero-based budget, you set up multiple savings accounts—my wife and I have “emergency” and “insurance” accounts, for example—and assign yourself amounts that you “owe” to each, like bills you pay to yourself every month. That way, savings become another mandatory expense, like any other bill, leaving zero money unassigned in your budget, but some of it will be tucked away in savings. 

Build Your Savings

An emergency fund is essential to a solid financial plan. The best way to prepare for a surprise medical bill, costly car repair, or temporary loss of income is to regularly set money aside so that you’re covered when the situation arises. It’s prudent to maintain enough savings to cover three to six months of your regular expenses as a general rule. Once you build that savings, you can allocate the money you’ve allotted toward other financial goals. You can’t put a price on the peace of mind that comes from an adequate emergency fund.

Plan for Major Purchases

It’s best to know ahead of time how you’re going to pay for any big-ticket purchase. Buying with a credit card, of course, can add significant expenses with interest on the amount spent. Establishing separate savings account for a specific purchase goal can be helpful, allowing you to contribute a certain amount each month until you cover the cost. This will help keep the funds separate, and you’ll be able to see how quickly you are approaching your goal.

Save Early for Retirement

Retirement savings should be a long-term project. Start as early as possible, automate the process and forget about it. Even a small, regular contribution has the potential to grow into a large nest egg. If your employer offers a 401(k) plan, take advantage of it, along with the pre-tax savings on your earnings.

“Developing a few sound habits can put financial security within anyone’s reach”

A health savings account (HSA) is also worth considering. You can contribute pre-tax dollars, pay no taxes on earnings, and withdraw the money tax-free now or in retirement to pay for qualified medical expenses. 

Handle Credit with Care

Use credit cards only when absolutely necessary and pay off credit card balances each month. One way to ensure you meet that goal: set a personal monthly limit and stick to it. Your credit score is another critical part of your financial well-being. Late payments, lingering credit card debt, and high balances have a negative effect. The three national credit reporting agencies—TransUnion, Experian, and Equifax—are required by federal law to provide you with a free annual credit report. You can receive your free annual credit report from annualcreditreport.com.

Keep Financial Records

Develop a system for organizing your financial records. Items like receipts, pay stubs, tax records, banking, insurance information, and any other documentation that affects your finances should be kept secure but accessible.

Ask for Advice

Financial planning is essential for everyone, not just wealthy people managing large investments. Among the most essential services credit unions provide are financial education and advice to members.

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