Financial Wellness: 10 Ways To Practice It Every Day
By Team 1AND1
Financial health is one of the cornerstones of holistic health, including spiritual health, physical health, and more.
Without financial well-being, you’ll feel a lot more stress, you’ll find it tough to pay for necessary expenses, and other areas of your life might become more difficult as a result. Unfortunately, many Americans struggle with financial wellness every day.
Part of that is due to a lack of financial wellness education. Many folks simply aren’t taught how to keep track of their finances and save money when they are kids or teenagers. After you start earning money, it can be very difficult to go against learned money habits.
Today, let’s learn some smart money habits and go over some ways you can practice financial wellness every day to make more informed decisions about your financial journey.
1. Track All Spending
First and foremost, the best way to practice financial wellness is to track all of your spending. That doesn’t mean you need to obsessively pour over every financial decision you make with a notebook and pencil. Instead, tracking your spending means:
- You account for how much money you spend every week
- You account for how much money you earn every week or month depending on when your paydays are
- You figure out the difference between those numbers and take action as a result
It’s no big deal if you like to make minor purchases here and there, like buying a coffee at your favorite café on the way to work. But you need to keep in mind that buying a $5 coffee every day means $25-$35 every week. That can seriously add up over time!
By tracking your spending, you’ll have a better understanding of:
- Where your money goes aside from regular bill payments, like your rent payment or student loan payments
- How much money you need to make to meet your short-term and long-term goals
- Whether you need to cut down on your frivolous spending in order to meet those goals
Tracking spending essentially makes it much easier for you to practice money management. When you track your spending, you know where your money goes and can make wiser decisions depending on your strategies and needs.
Fortunately, practically every online bank has spending tracking tools these days. Log into your bank account and look for a breakdown of your spending, which should be organized into basic categories like food, travel, and more.
Alternatively, you can pick up a different type of financial tracking software and organize your finances personally. In either case, tracking your spending will go a long way toward making you financially healthier overall.
2. Automate Savings and Bill Payments
The next big step should be to automate your savings and bill payments. Again, most online banks have automated bill payment or savings tools these days. These allow you to automatically funnel a certain amount of each paycheck you receive toward different goals.
You should set all your required bill payments to autopay. Why? If you do this, you’ll never miss a bill payment again, which will prevent your credit score from getting unnecessarily penalized.
You should also automate savings. Even if you funnel just $50 to an emergency savings account every time you get paid, that savings account will gradually grow and eventually turn into an emergency fund (more on that later).
If you have the cash to spare, you might consider funneling a percentage of your paycheck to your savings account or retirement savings, such as 5%, 10%, or more. Automating savings is beneficial because:
- Then you don’t have to think about saving money — it happens automatically, which is easier for many Americans who struggle to save money when they could spend it on fun things in the short term
- Your savings will grow without you having to make the good money habit decision every time
Overall, automating your bills and savings additions is easy and beneficial in the long term.
3. Avoid Credit Cards (if Possible)
From time to time, everyone has to use credit cards, whether it’s for buying an expensive item or for paying an emergency expense, like a hospital bill. However, you should try to avoid using credit cards whenever possible.
Credit cards, while useful tools are risky in more ways than one. This is doubly true if you don’t have stellar credit and only qualify for credit cards with high-interest rates or lots of extra fees. The more you use credit cards, the lower your credit score gets and the more money you have to pay in the long run due to interest.
For the best results and the highest credit score, you should only have one or two credit cards open at any time. You should maintain these credit cards for emergency purchases only. If you take money out on your credit card, try to pay off the credit card’s balance in full by the end of the next payment cycle.
This can have a net positive effect on your credit score overall since it shows the big three credit bureaus that you can be trusted with money and will pay it back on time and in full.
4. Budget for Big Purchases
Say that you want to buy something big and nice for your apartment or house, like a new couch or a new gaming console. In either case and more, you should budget and save up for those big purchases rather than buying them on credit or through financing.
Credit and financing require you to pay more for the purchased items because of interest rates. Interest adds a little bit of money to the remaining balance of your purchase, so you end up paying more for the items in question in the long run.
If you save up for big purchases instead, you’ll only pay the full asking price for those items. Plus, you’ll learn better financial habits and avoid accidentally trapping yourself in a cycle of bad credit that could last for years.
5. Save for Retirement
Saving early on is crucial if you want to enjoy your golden years.
While it’s easier said than done, funneling even a little bit of money to your retirement account each month will go a long way toward setting yourself up for success after retirement.
Luckily, many employers offer 401(k) retirement plans where they match a contribution to that 401(k) account up to a certain percentage, usually between 1% and 3%. It’s highly recommended that you maximize your contribution based on whatever your employer matches since it’s essentially free money added to your retirement account.
Alternatively, starting an IRA or independent retirement account could be better for your personal finances. This can be a wise choice if you are a freelancer or your employer doesn’t offer a 401(k) program.
6. Save for an Emergency Fund
While saving for retirement is important, so is saving enough money to make an emergency fund. Emergency funds are nest eggs you can fall back on if you run into trouble and need cash fast.
For example, say that you get into a car accident and have to take some time off work. An emergency fund can provide the financial security to help you pay for medical bills even if you don’t get paid from your job while you recover.
Millions of Americans don’t have emergency funds at all, so it’s tough to pay for things like blown tires, health care, or car maintenance. Ideally, you should save for an emergency fund of at least several thousand dollars. However, even an emergency fund of $200 can save you from taking out a predatory payday loan later in life.
7. Keep Records
Try to keep records of any significant financial transactions or decisions you make.
For example, every year, your employer sends you a tax form, and the government sends you summaries of your tax filing. Keep all of these records in case you ever get audited by the IRS or need to review your financial life for future decisions.
Similarly, if you have any investments in the stock market or elsewhere, keep that paperwork somewhere safe. You never know when you’ll need to refer to account numbers or balances if you want to cash out your investments or do something else entirely in your financial future.
8. Refinance Loans as Your Credit Improves
If you have to take out a loan for any reason, consider refinancing it as your credit score improves. When you refinance a loan, you take out a new loan from a different provider (or from the same provider, in some cases) with better terms, like a better APR and no fees.
Refinancing your loans is wise since:
- You’ll save money in the long-term through lower interest rates
- You’ll save yourself money since you’ll pay fewer unnecessary fees
- Your credit score may improve since higher-quality loans are easier to pay back
For example, if you have to take out a lot of loans, consider taking out a debt consolidation loan. Debt consolidation loans pay off all your existing loans at once. Then you’ll have one debt consolidation loan remaining for the total balance of all the loans combined. One debt consolidation loan is a lot easier to repay than 10 separate loans with different interest rates!
9. Keep Your Credit Usage Below 30%
As noted above, sometimes you have no choice but to use credit to pay for medical bills or other emergency expenses. If that’s the case, that’s all right! However, you should still aim to keep your total credit usage below 30% on a day-to-day basis.
Your credit usage also called your credit utilization rate, should be kept under 30% because anything higher tends to weigh down your credit score. That, in turn, makes it harder for you to qualify for the best loans and credit cards, and it may make it harder for you to get favorable mortgage offers if you want to buy a house in the future.
Say that you have a credit card with a maximum limit of $1000. You should only ever use up to $300 of that credit card to keep your credit utilization rate low.
10. Follow the 48-Hour Rule
Are you tempted to buy something nice you found at the store? Or did you see a sweet new car drive by and suddenly feel like replacing your beat-up used car? We all feel the temptation to buy things we don’t need from time to time.
Do yourself a favor and follow the 48-hour rule to practice financial wellness. The rule means you should wait 48 hours after seeing something you want to buy and see if you still want to buy it after that time limit is up.
If you still really want to buy the nice item after 48 hours, consider treating yourself if you’ve been doing a good job with financial wellness otherwise.
After all, everyone needs a report from time to time! But in many cases, you’ll find that your temporary desire for the new item was just that: temporary.
After 48 hours, your brain might realize that it doesn’t need the nice new item and that you’ll benefit from funneling that cash into a savings account instead.
The 48-hour rule is a great way to save money and avoid frivolous spending if you struggle with this bad habit. Following this rule can help minimize future financial stress while also guiding you toward your financial goals — not to mention the impact it can have on your peace of mind and mental health by preventing buyer’s remorse.
As you can see, there’s no one way to practice financial wellness. Smart financial strategies are multifaceted, and practicing several strategies can help you save money, make the most of your current finances, and set yourself up for success in the future.
Want to know more about how to maximize your finances or practice further financial wellness? Check out detailed guides from 1AND1 Life today.
The Relationship Between Financial Worries and Psychological Distress Among U.S. Adults | NCBI
Building up financial literacy and financial resilience | PMC