Learning some financial wellness tips for personal knowledge is not going to help you
These are not fairy tales you read to enjoy and waste your time
You learn and apply them in your financial life so taking action is crucial
I have to admit it took me long time to become what I am right now
A person who doesn’t care to carry the latest mobile phone or wearing brand names
It comes to the end of willing to live frugally and I had the will to do it
In this post, I will list all my financial wellness tips I know and apply
What does financial wellness mean?
Financial wellness in simple words is about your relationship with money
It is also a plan to deal with financial pitfalls that could impact your financial life
Why is Financial Wellness important?
Having good financial wellness means no stress – who wants to be stressed?
According to study by APA one third of American under extreme stress
While 48% claim that there stress increased in the last 5 years
That’s why applying financial wellness tips like building your budget, saving for emergency fund and saving for retirement and kids’ education will reduce your stress dramatically
At the same time, if money is an issue as with lot of couples
Then having financial wellness will guarantee a stable relationship and long lasting marriage
What about self confidence and peace of mind?
Yes these are also signs of good financial wellness
Does financial wellness affect health?
I can say confidently yes to a high degree
If you suffer from stress due to not managing your financial life properly
Then what do you expect, stress causes high pressure and insomnia and a major cause of many heart diseases
How can I improve my financial wellness?
By following my below financial wellness tips, you will not improve your financial life
But you will take your life financially to the next level
I like Dave Ramsey and most of his quotes, he said onceWe buy things we don’t need with money we don’t have to impress people we don’t like. (Dave Ramsey) Click To Tweet
Now let’s focus on the most financial wellness tips and I will start with
Reliable income
Expenses are always a recurring money going out of your pocket
The only thing that can pay your expenses is your steady stream of cash as known as Income
That’s why you should have a steady and reliable income every month
I remember during the financial crisis of 2008 – I tried hard to work in my IT field
Accepting the fact that I was not that competitive to my peers – this caused me to lose so many interviews
I decided I have to work even it is a simple minimum wage and so I worked at Walmart
I had an income and according to that I adjusted my life accordingly
Choosing suitable medical and life insurance
One of the best financial wellness tips to follow today is to look for a suitable medical insurance – who knows what will happen tomorrow
A high percentage of those who fell in debt happened because of a medical emergencies and they couldn’t pay the bills and so debts occurred
Life insurance is not less important as you don’t want your next generation to suffer unless you have a wealth to pass away to them
Spend less than you earn
It doesn’t matter how much you earn
The key to any financial success is to spend less than you earn
Do you remember my Walmart story?
My life had changed and I accepted this fact
I had to cut so many things I used to buy or do when I was working in my career
Pay yourself first – one of the best financial wellness tips
This is one of the best financial wellness tips
If you are going to apply one financial tip then go ahead with this one
But wait a second, I have to tell you what does it mean to pay yourself first
It is a term to deduct (preferred automatically through your bank) from every paycheck a specific percentage or an amount if like
By doing that you force yourself to save
Assuming you don’t go back and take part of this money if you are tie with your hand
Budget is like a compass
I always do this challenge and I know I will win all the times
I will ask you what is the percentage of your mortgage or rent to your income?
Don’t feel bad if you don’t know the answer
Only those who build a budget can answer that
A good budget like the one in my image below can instantly calculate the percentage of your spending
Anyway, you can use my free budget sheet to achieve something like the above
Build emergency fund
Nothing is better than making sure that you have money set aside to pay for emergencies
For example, you roof top started to crack or your car suddenly stopped
That’s why smart financial people suggest to build emergency fund and save money there
Only borrow what you can afford
First you have to know what is your affordability
Well there is a percentage called DTI which stands for Debt To Income
Simply it is a ratio of how much debt you owe according to your income
Usually a DTI of 35% is a good sign that you can somehow be able to pay your debt
Again this percentage means you have to cut 35% of your income monthly to pay your debt – I hope it is clear
Set financial goals for yourself
Those who managed to reach their financial goals admitted that they have them written on paper and hanged near a place accessible and visible to them
Below is my financial goals roadmap, you can find it on my download page
Learn basic financial knowledge
That’s right like the difference between assets and liabilities
Asset is anything that puts money in your pocket
While a liability is a thing that takes money out of your pocket
I have a detailed topic about personal financial literacy
I would leave it up to you to read it
Focus on your needs and not your wants
Most of us spend their income buying all the things they can buy
Few of us can differentiate between their needs and wants
Well, what you need is what is very essential to your life
You cannot live without like your shelter, food and transportation
While your wants are what you buy because you want to do so
Like your clothes, a new watch or cell phone
Anyway what I want you to learn is before buying anything
Ask yourself is that a need or want
Avoid falling into debt
One of the best financial wellness tips to learn is to know what makes you fall in debt
It is easy, I would tell you – you go to a car dealership and you buy a car with 5 years loan with whatever an interest rate – the interest rate here is not an issue
You are now putting yourself in debt as you have a commitment of 5 years to completely pay your loan
Who knows what would happen in 2 to 5 years
I am not against buying cars but think about any loan before you commit to it
Beside I am a big fan of buying used cars of high reputation using saved cash or little money from my home equity line of credit
Invest your money
Inflation rate in north America is 1-2% so the whole point of saving is to make your money grow for retirement
With the magic of compound interest, if you invest your money in well managed mutual funds with 12% dividends, you cannot image how much you will make in 10 years
For example, if you invest $5,000 annually with 7% interest after 10 years you will get $100,000
Make sure to have a will
Keeping a will is not expensive at all but it will protect you from getting the government to seize part of your wealth
How much money do I need to be financially free?
Well, before I answer that question
I would like to know the timing of when you need to be financially free
Are you aiming to be financially free at retirement age or before retirement
if you are spending $50,000 annually exclude what you pay for mortgage, I will tell you why shortly
Now you have $50,000 and this is your expenses
When you retire, you need to multiply your expenses by 25
But why 25 specifically?
Well, your invested money are producing let’s say around 7% for low risk stocks or mutual funds at the age of retirement you switch your investment to low risk
You need to withdraw 4% and keep 3% of your dividends to be reinvested to cover the inflation rate
So $50,000 by 25 = $1,250,000 so 4% of that amount $1,250,000 x 4% gives you the $50,000 annually
What? do I need to save one million and 250 thousands to retire financially free
Not really, because we forgot about your government pension
If you consider you government pension is dedicated to pay your rent
At the same time, you would have your home fully paid
This is a lump sum good amount to help you in your retirement plus your spouse pension too is not taken in consideration
Now if you need to be financially free before retirement like you quit your job then the amount mentioned above is what you need to save
What are some examples of financial wellness?
It is very easy to tell if you applied all the financial wellness tips or not
A true indication of a financial success in your life is to have the following
Have control on your day to day finances
Sure you can do that with a balanced budget that make sure you apply 20% to your savings
You can read about the 50 30 20 rule
Have enough cushion to handle financial emergencies
By making sure you have the emergency fund with at least $1,000
Some people they start saving 3-6 months of expenses in case they get laid off
Being and staying debt free
It is a nice condition to have all of your debt being paid and staying like that
On track to meet retirement and saving goals
Always review your stocks and mutual funds which you have for your retirement saving plan and making sure you saved money for your kids’ education