April 21, 2020
April is Financial Literacy Month! Given world events over the course of the past several months, there’s no better time to dive into understanding your finances and striving for financial health.
Due to the coronavirus outbreak, many people have been forced to take time off of work, or watch their children full-time when schools closed. Service-based professionals and business owners may have suffered layoffs or a loss of revenue. In short – America needs financial literacy month now more than ever.
The key to financial literacy is understanding what financial wellness looks like to you, and making decisions accordingly. If you’re dealing with financial hardship right now, this exercise may feel like putting a band-aid on a much bigger problem. However, the sooner you get clear on how you define your financial values (and why), the sooner you can start adjusting your financial habits to make a lasting positive impact.
Defining Financial Wellness
Financial wellness is usually defined as feeling secure when it comes to your money – both in the short and long-term. However, there is a wide range of how people relate to financial security, so your definition of wellness may differ from your neighbor’s. In fact, definitions of financial wellness may even be different between you and your spouse or partner.
The way you perceive financial security depends on your cultural background, and your personal history with money. For example, if your parents were on welfare, or if your community growing up valued being able to take care of yourself and aging family members, you may require more of a safety net to feel financially secure.
There are a few questions to ask yourself when trying to determine what financial wellness means to you:
- How big of a “safety net” or cash savings do I need to have to feel safe?
- Does my job provide enough of an income to cover my expenses?
- Am I in debt, and is paying off my debt a priority?
- Do I have enough cash flow to cover non-essential expenses (like taking my spouse out to dinner) or short-term financial goals (like making a large purchase)?
- Am I on track to meet long-term financial goals (like retiring by a certain age)?
If your answers to these questions surprise you, take time to dig deeper. Uncovering why you feel the way you do can help you to ensure you’re aligning your vision of financial wellness with what you value.
What Action Steps Can You Take?
Achieving financial wellness is best broken into two actionable categories: short-term and long-term goals. In the short term, you want to take steps that will stabilize your cash flow, prioritize debt repayment, and align your spending with your values (while living within your means). Here are some examples:
- Start focusing on building an emergency fund of 3-6 months of living expenses. If this feels out of reach, start with saving up just one month of living expenses, and grow from there.
- Automate bill payments, and be clear on when those payments will be taken out of your account. No surprises!
- Automate payments toward your student loans and other lines of credit, and stop using credit cards when you can.
- Sit down with your spouse or partner to determine your top 3-5 values. Look at how you’ve been spending your money for the past month – do your expenses match those values? If not, consider adjusting. For example, if you value time together, but are spending more money on lattes before work than you are on date night, adjust accordingly.
Financial wellness doesn’t happen overnight. However, these short-term actionable steps can move you toward a better, more secure financial future. Don’t discount baby steps in the right direction!
Long-term steps can be more challenging but are even more critical to achieving financial wellness. Thinking ahead into your financial future may feel nerve wracking. It’s tough to plan ahead, especially when you’re focused on getting yourself out of a bad financial situation in the short-term. Your goal shouldn’t be to make complex financial plans for yourself right now. Instead, take simple steps that will move you toward long-term financial wellness and security:
- Automate contributions to your retirement savings. Even if you’re only contributing up to the company match, keep contributing consistently.
- Think about long-term financial goals (or purchases) you may want to make, and estimate their cost. Do you want to buy a home? Purchase a new vehicle? Knowing your values along with the dollars and cents of your goals may help you prioritize and save accordingly.
- Set a goal to become debt-free, and stick with it.
Why It’s Critical to Take Control of Your Finances Through Education
Unfortunately, it’s rare that financial wellness is taught to children in America. While some programs do exist, they’re few and far between. People from families who were living paycheck to paycheck, or who came from a culture that didn’t include them in financial discussions as children are at a disadvantage.
Luckily, there’s still time now to prioritize financial education and financial wellness. There are so many resources available to help you educate yourself on every financial topic imaginable – from debt repayment to investing. Here are a few to check out:
- Broke Millennial
- Paychecks & Balances
- XY Planning Network Personal Finance Blog
- Money Smart For Adults (from FDIC)
- Personal Finance Workshops (from In Charge)
The more you arm yourself with financial knowledge, the more likely you’ll be to make empowered decisions that lead you to the financial wellness goals you’ve set for yourself.
- Define what financial wellness means to you, and set your goals accordingly.
- Take short and long-term steps toward stabilizing your financial life, and achieving your wellness goals.
Dedicate time to financial literacy and education so that you can better understand your finances, and make empowered financial decisions with your new-found knowledge!