Bruce Helmer and Peg Webb
There are many definitions of financial wellness, but in our view, it refers to the degree to which you have achieved financial security and freedom of choice in the present and future across four dimensions: budgeting, saving, investing, and planning.
Concerns about financial stability continue to dominate the U.S. economy as workers struggle to recover from inflationary stressors and market volatility. These were the top two financial wellbeing issues for 72% of workers, according to a 2023 survey of workers by global investment consulting firm Mercer.
As a result of this new view of financial security, the definition of financial wellness has expanded to intersect with other areas of our lives, including general happiness (i.e., life satisfaction), psychological well-being (i.e., self-actualization), and ways to reduce financial stress. Rising everyday expenses, debt, and medical costs continue to be of primary concern, as well as the longer-term, broader concern of whether we will be able to retire. Equally important to financial wellness is the ability to maintain physical health into older age through access to proper medical care, diet, and exercise. Wealth cannot be easily enjoyed if health is impaired.
Therefore, there is increasing recognition of the subjective dimension of financial well-being, which corresponds to the emotional and cognitive appraisal of our financial situation.
Financial wellness shouldn’t just be focused on modifying negative behaviors. I titled today’s post “Financial Wellness Practices” because wellness requires practice — the repeated reinforcement of many positive behaviors over time. Many of the things we all do can contribute to taking control of our situation and creating a positive financial outlook.
To achieve financial wellness, try “doing” some or all of the following activities: Do a little each day to maintain positive momentum, increase your ability to withstand financial challenges, and feel more confident in your financial success.
Increase your financial literacy: Financial literacy includes a variety of skills, including how to save and budget, understand investing and debt management, and how to set and achieve financial goals. Read financial magazines, books, and blogs, and sign up for educational seminars and webinars. Your local public library is a great resource. Listen to podcasts and network with colleagues and peers. The key is to tailor your learning to your own experience and level. We provide a wealth of resources on the Insights page of our website (wealthenhancement.com).
Create a net worth statement: On a piece of paper, list all the assets you own (e.g., your home, stocks, bonds, cash, personal possessions) and subtract all of your liabilities (e.g., outstanding mortgages, lines of credit, car loans, college loans, etc.). This will give you an accurate picture of your household net worth and can be a very useful financial planning tool. Be sure to do this every year to see if your net worth is increasing or decreasing.
Track your spending: Before you can set a budget, you need to have a clear idea of how your money is going each month. Use a notebook or a money tracking app to record your daily expenses into both “have to spend” and “can spend” categories. Banks and brokerages often have apps that can capture all the different threads of your spending and help you set a monthly budget.
Cut back on unnecessary spending: If you’re not getting the most value from the products and services you buy every week, it might be time to cut back on dining out, exotic coffee, video streaming services, cable services, etc. But don’t cut out all the fun parts of life. Balance is key, so you don’t feel regret or guilt when you want to spend money on the things you love.
Increase your retirement savings: Consider increasing your contributions with each annual pay increase, or at least enough to qualify for employer contributions. The tax code allows you to make catch-up contributions to a 401(k) or IRA after age 50. Don’t put too much into these accounts, though, as you could face a large tax bill down the line. We recommend consulting with a financial advisor to learn how increasing your savings applies to your situation. In addition, many employers are enhancing their employee benefits programs with employee discount programs, tuition assistance, or debt management services. It’s worth exploring what’s available to you.
Pay your bills: Pay off your loans, credit cards, and other debts (especially those with high interest rates) to reduce your debt. We know we’re repeating ourselves, but you should never take on more debt than you can comfortably handle. Shop around for the best deal before taking out a loan, and avoid carrying credit card balances if possible.
Create or add to your emergency fund: Set aside at least six months’ worth of living expenses, especially if your job is unstable, if a family member is at risk of disability, or if you have unexpected car or home repairs. You don’t need to start building your emergency fund on day one — start small and build up over time. Keep this emergency fund in a relatively safe, liquid fund. You can always move any excess emergency savings into a “long-term” investment account.
Check your credit report or score: Your credit rating affects your eligibility for credit and the terms of that credit, so it’s important to check your score regularly, even if you always pay your bills on time. Plus, with a surge in the number of identity theft and credit card fraud cases, you can’t be too careful. If you find an error, contact the rating agency to dispute whether there was an error. (You can check your credit score once a year for free through all the major rating agencies. Visit AnnualCreditReport.com or call 1-877-322-8228.)
Review your asset allocation: Meet with your advisor at least annually to determine whether your asset allocation is aligned with your goals. Be honest about your expectations, especially during times of high inflation and volatile markets. Even if you manage your own money, you should self-evaluate whether your asset allocation (and risk budget) are appropriate.
Work with a financial advisor: Achieving financial wellness is a complex task, especially if you have many assets and income streams, have children with special needs, or have a complicated tax situation. In situations like these, having an advisor on your side can be a big help. And even if you want to manage most of your financial decisions yourself, having someone to challenge your assumptions and provide a second opinion can be invaluable.
This list may seem daunting, but you don’t have to tackle it all at once. Pick one or two financial wellness goals and work at your own pace. Celebrate your victories and milestones, no matter how small, and pay attention to your overall physical health. Soon you’ll feel more confident in your ability to achieve and enjoy the financial success you deserve.
The opinions expressed in this material are for general information purposes only and are not intended to provide specific advice or recommendations to any particular individual.
Bruce Helmer and Peg Webb are financial advisors with Wealth Enhancement Group and co-hosts of “Your Money” Sunday mornings on WCCO 830 AM. Bruce and Peg can be contacted at yourmoney@wealthenhancement.com. Securities are offered through LPL Financial, member FINRA/SIPC. Advisory services are offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.
