A Guide to Financial Wellness

The COVID-19 pandemic, market volatility, and increased inflation have pushed many Americans to start thinking critically about where their money is going, and how they can better prepare for the unexpected. You may be wondering, “Where do I start?” Especially in times of economic uncertainty, creating a sound financial plan can feel overwhelming. We’ve laid out some practical steps for getting started:

1. Evaluate

To begin, evaluate where your money is going. This may be an uncomfortable process, but it’s important to know how much you are spending on a regular basis, what you owe, and what adjustments you can make to help you plan for a confident financial future. This is also the first step in creating a budget. You want to make sure you are spending less than you make, and, if not, create a plan to live within your means. You may have a habit of spending more on wants, such as the latest smart phone, designer clothing, or eating out every week, rather than needs, such as a roof over your head, electricity, transportation, and groceries.

You can conduct this evaluation using a spending tracker app, or by creating a spreadsheet that shows your monthly income as it compares to your monthly spending, divided into categories (rent, utilities, transportation, entertainment, restaurants, etc.)

2.  Create a plan and stick to it

After taking an honest look at your current spending habits, create a realistic budget that you can stick to. As the saying goes, “By failing to prepare, you prepare to fail.” The most critical step in helping to obtain financial wellness is planning. Plan to spend less than you make and set aside what you have leftover for savings.

3.  Build your emergency fund

As we’ve seen over the past two years, you can’t plan for everything. For that reason, an emergency fund is critical. Many professionals recommend emergency savings of three to six months’ worth of earnings to be prepared for the unexpected.

4.  Tackle debt

Some advisors suggest paying down the smallest debts first (the snowball method), while others recommend prioritizing paying off debt with the highest interest rates first. Your Southwestern Investment Group financial advisor can help you determine the method that works best for you and your individual situation. Regardless of the method you choose, it is important that you get started.

5.  Get serious about saving

Once you have a budget, an emergency fund, and a handle on your debt, it’s time to get serious about saving.

  • Include savings in your budget as a regular, necessary expense (Go a step further by setting up re-occurring transfers directly into your savings account).
  • Consider a high-yield savings account (could pay about 2-3% interest, as opposed to the average U.S. savings account’s rate of 0.5%).
  • If your employer offers a 401k, set aside a portion of your monthly income to make contributions.
  • You may be able contribute to a traditional IRA or Roth IRA for potential tax benefits and optimize your retirement savings

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