Sponsored: KEMBA Financial Credit Union
Did you know that your finances can affect your health and overall wellbeing?
Studies have shown a direct correlation between how you feel about your finances and your physical and mental wellbeing. Personal finances can create anxiety, which can lead to worry, stress and lack of sleep, which can lead to more serious conditions like digestion issues, heart health, a compromised immune system, depression and more.
Not surprisingly, COVID-19 amplified financial stress in 2020, accelerated by job losses, economic uncertainty, food and staple shortages, business closures and more, the impact of which will be studied for years to come. With 2020 now behind us, there is a fresh opportunity to improve your financial wellbeing and avoid the associated risks to your health and wellness that come from financial stress. Here are some steps you can take to improve your personal finances.
Take a financial inventory
The journey of a thousand miles begins with a single step, and your journey to financial wellness begins with a simple step as well – taking an inventory of your personal finances. It can be difficult to create big picture goals without first understanding what you have to work with. A financial inventory lays out your personal finances and gives you a starting point.
Start by reviewing what you ‘own’ or assets, including checking and savings balances, stocks, , etc. Compare your assets to what you owe, or liabilities (credit cards, student loans, auto loan, etc.). Together these two components give you a basic financial statement, which tells you the health of your personal finances. If you subtract the liabilities from your assets, you can see your net worth. A positive net worth shows that you have enough assets to cover your liabilities, and a negative net worth shows you that you could be over-leveraged. Now that you have a starting point, it is time to create a budget.
Create a budget
A monthly budget helps you plan where your money goes, which gives you more control and peace of mind. This is an exercise that you should do each month with everyone in your household who contributes to your monthly income and expenses.
Start by listing out all your monthly payments – food, gas, car payment, etc. all the way down to the $5 streaming service you pay for. This list of payments shows you a baseline of expenses, how you are spending your money and what is left over after your bills are paid.
The left over is also called your disposable income. This is the portion of your income you can use to make planned or unplanned purchases, save, pay extra on a loan, or fuel your financial goals. Having a disposable income will help you reach or increase your positive net worth.
Make a financial plan
A financial plan is a list of things that you want to accomplish with your finances, along with specific strategies you can use to meet your goals within your timeline. Writing out these goals can help you stick to your plan, and you can easily revisit and revise them based on your progress. Here are a couple of examples you can use to get started.
- If your goal is to get smarter about your monthly spending, your strategy could be to evaluate each purchase and cut unnecessary or impulse purchases. You’ll know you are successful when you re-evaluate your budget each month and see more disposable income.
- If you want to reduce the interest you are paying on your credit cards, your strategy could be to review your current rates and research other cards that provide a consolidation offer with a lower interest rate. You’ll know you are successful when your monthly payments are lower than previous months.
- If your goal is to increase your net worth, your strategy could be to look at your financial statement and identify short-term liabilities that can be paid down quickly. You’ll know you are successful as you watch your net worth grow from month to month.
- If your goal is to save for college, your strategy could be to set up a 529 account for your child and start contributing each month from your disposable income. You’ll know you are successful as you watch your balance grow as your child grows.
When making your own goals, including monetary amounts and specific dates is often helpful.
Commit to Financial Health
Like a commitment to become more physically healthy, a financial plan requires dedication and intention. Constant reminders of what you are trying to do not only provide psychological encouragement to stay the course long term but can help you limit your spending in the short term as well. Here are a few examples of how you can stay dialed in and focused on your financial goals.
- Find a partner to support your financial goals, like your bank or credit union, with resources to help you stay on track.
- Listen to podcasts about money management and stories from others who have been on the same journey.
- Read books and articles about money management to renew your perspective, learn new strategies, and resolve to stay on track.
- Track your progress by doing the financial statement and budgeting exercise each month, which provides the accountability and motivation to keep going.
- Don’t hesitate to ask for help. Find a financial mentor who has been in your shoes and ask questions about their experience.
Staying on Track
Once you commit to improving your financial health, credit unions, like KEMBA Financial, can help you stay on track with banking services and financial counseling resources that align with your goals. KEMBA commits to helping members improve their personal finances, financial IQ and improve their financial outlook. Not sure where to start? A KEMBA member services representative can help you assess your needs and create a plan to help you improve your financial position.
If you would like to know more about KEMBA membership and our financial counseling and education resources, get started by calling us at 800.282.6420, option 4.
