Health professionals say we’re going to die of one of two reasons – accident or chronic illness. Our job is to move those markers out as far as possible by making positive lifestyle changes – buckle up, eat right and in moderation, exercise, get plenty of sleep, and more. Why aren’t we doing similar things with our financial health – moving the markers out so we don’t run out of money, avoid the “big investor mistakes,” and leave plenty for our loved ones and beneficiaries? And if money is a leading cause of stress, and stress is a leading cause of disease, how can we better take control of our own health and financial well-being? Here are five tips to help tame your finances:
Change Your Habits
Achieving your health or financial goals require making adjustments. For example, no one gets rich by spending more than they make. What is important about your goal whether it’s building an emergency fund, paying off debt, saving for retirement, and why is it important to take action now? Creating new habits and dropping old ones can be difficult.
Our health professionals drill us on healthy numbers – keep cholesterol under 200 mg, blood pressure under 120/80 and BMI in the range of 18.5 – 24.9. Similarly, in personal finance, the successful investors set budgets and their wealth targets for financial freedom. They periodically track their progress and make adjustments as needed. Goals that are measured are more likely to be achieved.
Annually, the Prudential Wellness Census summarizes the top financial priorities and concerns of Americans. By objective measures – income, assets and debt – America is split between those who are financially healthy and those who are struggling. However, more than a quarter have perceptions that are at odds with reality. For example, 12 percent possess a high level of financial health by objective measures yet are pessimistic about their finances. Another 17 percent fall on the opposite side with their objective financial health low, but they perceive themselves in good financial shape. Such misalignment has implications. Those who are relatively affluent can suffer higher stress, be too cautious in investing or deprive themselves or family of quality of life. And those who are at the lower rungs of financial health but optimistic about the future can overlook changes they need to make now.
Deal with Debt
Consumer debt – credit cards, personal loans and lines of credit – are wealth detractors. They’re easy to get, easy to over-extend and are expensive. Design an aggressive debt repayment plan such as the debt snowball method. Write down each of your debts (and their terms) line by line excluding your mortgage, budget a monthly repayment amount (greater than the total minimum payments), prioritize your debts (either smallest balance first down to the largest, or highest interest rate first to the lowest – I recommend the smallest balance first for the earlier emotional win), pay the minimums on all the other debts and throw the balance at the debt on the top of the list. Once the top debt is fully paid, repeat the process with the same total monthly payment and target the next debt. The payments on the priority debt and payoffs escalate as you work down your list – hence the term “snowball” – and you become debt free!
A brilliant investment strategy seldom helps if you haven’t saved enough. The financially fit work savings into their budget – emergency reserves (safety net or rainy day funds), major expenditures, retirement or a college fund. And don’t pass up “free money” – at a minimum, fund your 401(k) plan to earn matching company contributions.
In closing, a healthy lifestyle is critical for a long, prosperous life. Start your journey to take control of your health and financial well-being, and stick to it.
Secure your future wisely.
This article can also be viewed on the Reno Gazette Journal.