12 Steps to Financial Wellness Step 7: How to Pay Yourself First

[Now that you’re managing your money well and you’ve even learned to share the gifts you’ve been given, it’s time to start perfecting the art of saving.]

“Pay yourself first” is a catchphrase that means prioritizing your personal savings above other expenses. Savings should not be an afterthought or an extra that only happens if there’s money left over at the end of the month. Putting aside money should be a fixed line on your budget that happens every month without fail. 

Here’s how to successfully pay yourself first.

  1. Review your spending

Take a clear look at your spending. If you already have a budget, this will be as easy as reviewing the column that lists all of your expenses, including your discretionary spending. If you don’t already have a budget, track your spending over several months to identify your primary expenses and to find the average amount of money you spend monthly. A budgeting app, like Mint or YNAB, can make this step super-simple.

  1. Set short- and long-term saving goals

Before you start setting aside money each month, you’ll want to have a clear picture of your saving goals. 

Short-term savings, or funds you want to be able to access in the near future if necessary, can be allocated to an emergency fund. Experts advise having three to six months’ worth of living expenses set aside in an emergency fund in case of a sudden, large expense and/or loss of employment. Some people also build a rainy-day fund, or a slush fund that can be used to pay for anything at all, such as a spontaneous vacation or a large discretionary purchase like a new phone. 

Long-term savings should include funds you can afford not to touch for several years or more. Your long-term saving goals can include funding your retirement, as well as a downpayment on a home, a new car, a sabbatical from work or any other super-big expense.

Narrow down your short- and long-term goals until you have a realistic picture, then attach a number to each savings category.

  1. Set a timeline for each savings goal

Now that you have a number for the amount of funds you want to save, you’ll need to determine a realistic timeline for meeting those goals. You’ll want to give first priority to your emergency fund, but at the same time it’s best not to neglect your future and to start saving for retirement today. This allows time to let compound interest work its magic. To that end, you may want to allocate the bulk of your monthly savings to your emergency fund until you meet your goal. Once your emergency fund is full, you can divide your savings more evenly between your short-term savings and long-term savings. 

While you work through this step, you may want to reach out to an HR rep at your workplace and/or your accountant to discuss your options for a 401k, IRA or another retirement plan. 

  1. Calculate how much you’ll need to save each month 

You’re ready to determine how much money you’ll need to put into savings each month to reach your goals by their deadlines. Take your total for each goal, and divide it by the number of months in your timeline. For example, if you’ve decided you want to have an emergency fund of $24,000 set up in four years’ time, you’ll divide $24,000 by 48 months to get $500 a month. This is the amount you’ll need to set aside each month to reach your goal in time. Do this for each of your goals. 

As you work through this step, don’t forget to account for any interest you’ll accrue for your long-term savings. Also, remember to prioritize your short-term savings for emergencies and adjust your savings allocation once your emergency fund is set up. Without the funds to get you through an emergency, your savings can be depleted as soon as any unexpected expense crops up.

  1. Automate your savings

Once you’ve got your savings plan ready to go, it’s best to make it automatic. You can set up a monthly transfer from your credit union checking account to your credit union savings account [or share certificate]. This way, your savings will grow even when you forget to feed them. Think of this money like taxes – it’s not actually part of your take-home pay, because it gets skimmed off the top before it even hits your wallet. But unlike taxes, all of this money (and the dividends or interest it earns) will land in your pocket one day, with some extra, too!

  1. Monitor and tweak as necessary

Life is dynamic, and your savings plan should be, too. If you find the system you’ve set in place is not working anymore, you can always tweak and come up with one that better meets your lifestyle. If you find that you’re short on the funds you need for paying yourself first, consider trimming your discretionary spending in a budget category or freelancing for extra cash before lowering your monthly savings goal.

Congrats–you’ve mastered the art of paying yourself first!

Your Turn: Do you pay yourself first? Share your best saving tips and advice with us in the comments. 

Step 6 of 12 to Financial Wellness: Pay it Forward

[Now that you’ve started paying down debt, you and your partner have tackled big money issues, and you’ve mastered the art of spending mindfully, you’re now ready to think beyond your own needs by learning how to pay it forward.]

Money management can sometimes feel inherently selfish. You’re earning, budgeting, saving and investing, all so you and those you love can enjoy a worry-free life on your own standards. But there is so much more you can do with the money you’ve been blessed with – as well as with your time, talents and possessions. Let’s explore five different ways you can make the world into a better place by paying it forward. 

  1. Donate funds to your favorite cause

The classic way to pay it forward can also be the simplest. Find a charity or two that speaks to your heart and make a donation that fits your budget. Ideally, it is substantial enough to make a difference, but any amount you are able to responsibly commit adds value and is appreciated. Be sure to verify the authenticity of the organization on a charity-vetting site like, BBB Wise Giving Alliance, Charity Navigator or CharityWatch. Don’t forget to save your receipt so you can claim a charitable-giving deduction on your taxes. 

  1. Commit to do one random act of kindness each day

Kindness doesn’t have to be big or loud to make a difference. It doesn’t even have to be costly. Small things that mean a lot can really make someone’s day. You can offer to make a coffee for your coworker, feed a parking meter that’s about to run out for a stranger’s car, remove a branch or rock from the middle of a busy thoroughfare or walking trail, or let someone go ahead of you at a checkout counter. There’s so much you can do when you look to give. 

  1. Write thank you letters 

When was the last time you thanked your child’s teacher for doing such a fantastic job on providing your child with an education? When was the last time you thanked your parents for giving you life, a happy childhood and their ongoing love and support? When was the last time you thanked your mailperson? Pick up a nice set of thank you cards and spend 20 minutes writing thank you cards to the people in your life; those who do so much for you, but aren’t always thanked for everything they do. Your letters will likely be cherished by the recipients for many months to come. 

  1. Donate your time 

Unfortunately, there are numerous people in this world who are suffering from sickness, poverty, loneliness, mental health challenges or other hardships. With just a small donation of your time, you can help alleviate some of their suffering. You can volunteer at a soup kitchen, help bring cheer to hospitals, offer to babysit for a couple who is going through hard times so they can have a night out to themselves or make a habit out of visiting a lonely person. You can brighten someone’s day with your presence alone!

  1. Share what you have

Aside from money and time, there are so many ways you can use what you have to bring cheer into someone else’s life. You can donate old clothing to Goodwill or gift a friend or neighbor with a full set of your child’s outgrown clothing if it’s still in great condition. Offer to lend out your books to your bookworm friends. Run a low-cost, or even no-cost, yard sale for all the toys, furniture and other items in your home that you don’t use any longer. Share your unused sports equipment with children who are less privileged than yours.

There are so many ways to pay it forward and make the world into a better place. And when you give to others, you’re really giving to yourself by learning how to be a better, kinder person. 

Your Turn: How do you pay it forward? Share your best ideas with us in the comments. 

Step 2 of 12 to Financial Wellness: Creating a Budget

Now that you’ve tracked your spending and kept a careful record of where your money goes over the course of a month, you’re ready to move onto the next step of financial wellness: creating a budget. Budgets play a crucial role in promoting financial awareness, which then helps to facilitate more responsible money choices. This discipline will benefit you individually, as well as all who are part of your household. 

Let’s get started by taking a look at how to create a budget and review some popular budgeting systems and how they work. . 

Create a budget in 5 easy steps

  • Track your spending and income. This includes all your financial documents, such as your account statements, bills and pay stubs. [If you’ve followed Step 1, you’ve already completed this step–nice work getting ahead of the game!]
  • Tally up your totals. Calculate the totals of your monthly expenses and all your streams of income. If your income exceeds your expenses, you’re in a good place. However, if your expenses exceed your income, or the numbers are too close for comfort, you’ll need to trim some discretionary expenses to make it through the month without falling into debt if an unforeseen big expense happens. 
  • List your needs. Your needs include anything that is essential for living and basic functions, such as rent or mortgage payments, savings, food and clothing. Needs always take priority in a budget. As you list each need, write down its corresponding cost. Sum up the total of your needs when you’ve finished. 
  • List your wants. This includes anything that is not essential for living, like entertainment costs, brand-name clothing and eating out. Here, too, note the monthly cost of each item on your list and add up the total when you’re done. 
  • Assign dollar amounts to your expenses. Open a new spreadsheet and copy your list of expenses, starting with fixed-cost needs, then non fixed-cost needs, and finally, your wants. Assign an appropriate dollar amount for each of these costs, making sure the total does not exceed your estimated total for monthly expenses. 
  • Review and tweak as necessary. You will likely need to adjust the amounts in each expense category at least once a year to keep your budget relevant. Likewise, you will hopefully be able to increase the amounts in the income column as you move upward in your career path or find additional income streams. 

Budgeting systems

While every kind of budget involves tracking expenses and committing to a maximum spending amount each month, there is a wide range of budgeting systems to fit every kind of personality and money management style. 

The traditional budget doesn’t involve much more work than the steps described above. After working out a number for every expense category, you’ll simply need to track your spending throughout the month to ensure you’re sticking to the plan. You can use a spreadsheet for this purpose, or utilize one of the popular budgeting apps, like Mint or YNAB, and do it digitally. 

The money-envelope system works similarly. However, instead of simply committing to sticking to your spending amounts for each expense category, you’ll withdraw the amount you plan to spend on all non-fixed expenses in cash at the start of the month. Divide the cash into separate envelopes, using one for each of these expenses. Then, withdraw cash from the appropriate envelope when making a purchase in that category. There’s no way to blow your budget with this system; when the money in the “Dining out” envelope runs dry, that’s all for this month!

The 50/30/20 budget is simpler, but requires more discipline. Set aside 50 percent of your budget for your needs, 30 percent for wants and the remaining 20 percent for savings. Of course, you’ll need to make sure your income and expenses will work with this kind of budget. Does 50 percent of your income cover your needs? If yes, this budget allows for more individual choices each month and less accounting and tracking of expenses. 

A well-designed budget can provide its creator with a sense of financial security and freedom. When you stick to a budget, you’ll always know you have enough to get through the month and save for the future. Start budgeting today!

Your Turn: Do you stick to a strict monthly budget? Share your best budgeting tips with us in the comments. 

My Money My Way: Taking Back Control of Your Financial Life

Title: My Money My Way: Taking Back Control of Your Financial Life

Author: Kumiko Love

Hardcover: 240 pages

Publisher: Portfolio

Publishing date: Feb. 1, 2022

Who is this book for? 

  • Single women looking for tips on managing finances on their own. 
  • Anyone who’s ever battled feelings of guilt, shame, doubt and/or deprivation in relation to money. 
  • Individuals looking to live a financially emancipated life. 

What’s inside this book?

  • Kumiko’s story of how she went from a newly divorced mom pulling in just $24,000 a year and facing $77,000 in debt to living completely debt-free in a home she bought with cash. 
  • Stories of moms, like Kumiko, who successfully navigated divorce and the financial challenge of making it alone.
  • Practical tools and tips for letting go of shame and deprivation for living a financially secure and fulfilling life. 

4 lessons you’ll learn from this book:  

  1. How to harness your emotions to your financial benefit, instead of letting them control you and drive your money choices. 
  2. How to create a budget based on your actual life, not a life of self-deprivation.
  3. How to create a debt payoff plan that can work.
  4. How to build a positive relationship with money. 

4 questions this book will answer for you:  

  1. How can I reverse negative thinking patterns that I’ve grown accustomed to?
  2. How can I align my emotional health with my financial health? 
  3. Can I take control of my finances with a low income and high credit card debt?
  4. Do I need to live with constant deprivation to have a financially secure life?

What people are saying about this book: 

  • “It’s no surprise that millions of people flock to Kumiko Love for her financial advice. She’s able to do the impossible: teach others about money in a non-judgmental, down-to-earth way while also making concepts, like budgeting and debt-repayment, exciting and fun.” – Jessica Moorhouse
  • “No shame. No condescension. Just real, practical money talk from a woman who lives it. Kumiko reminds us that our money struggles and mistakes are not a reflection of who we are or what we can achieve. And her tools and strategies offer an easy-to-follow framework for using money to build a lifestyle you love.” – Stefanie O’Connell Rodriguez
  • “If you’re ready to break free from a dysfunctional relationship with money and build wealth from a place of strength, Kumiko’s book is a must-read.” – Marie Forleo
  • “It’s so wonderful to see more voices join the movement that money shouldn’t be rigid or restrictive. Kumiko Love and her money management style will help you feel seen and capable instead of shamed and distressed — no matter the money mistakes in your past.” – Erin Lowry

 Your Turn: What did you think of My Money My Way? Share your opinion in the comments. 

Why You Need to Be Financially Fit

Individual Americans spend hundreds of dollars a year and at least as many hours on keeping themselves physically fit but too many people neglect their financial health. Just like physical health, being financially fit is crucial to your well-being, your future and your quality of life. 

Here’s why being financially fit is so important and how you can overcome common barriers to achieving financial wellness. 

Financial wellness: a ripple effect 

Being financially fit is about more than just having enough money in your account to cover your expenses and put away something for tomorrow. Managing money responsibly will affect many aspects of your life:

  • Marriage. According to a recent study by AARP, financial problems are the second leading cause for divorce in the country. Money brings resentment and arguments into a marriage. In a study reviewing over 740 instances of marital conflict between 100 couples, money was found to be the most common topic couples argued about.  
  • Mental health. Money stress can severely affect your mental health, causing depression, restlessness, anxiety and more.  
  • Physical health. Stressing over finances can also directly impact your physical health, leading to recurring symptoms like headaches, fatigue, upset stomach, insomnia, high blood pressure and an increased risk of heart disease and stroke.
  • Work life. Being bogged down by money worries can make it difficult to focus while at work, which can bring down productivity levels and hamper career growth. In addition, prospective employers tend to review the financial wellness of new hires as part of their background checks; high rates of debt and a poor credit score can cost an employee a new job. 
  • Parenting. Managing money irresponsibly can mean not having sufficient funds to pay for a child’s education, private lessons, medical needs and more. 

What are the leading causes of money stress? 

According to a survey by Credit Wise®, 73% of Americans rank money issues as the number one stressor in their lives. Here are the top causes for financial stress: 

  • High-interest debt
  • Insufficient savings
  • Medical bills
  • Living paycheck to paycheck
  • Lack of retirement planning

Stressing over money is never fun. Stressing over money, when any of the above applies to you, takes on its own form of angst by adding a level of long-term anxiety. It takes time, sometimes years, to undo the damage of any of these stressors but it can be done!

Barriers to financial wellness and how to overcome them

We’re convinced: being financially fit is super-important. But what happens now? Why are 80% of Americans in debt?  Why do only 39% of Americans have enough saved up to get them through a $1,000 emergency? 

Unfortunately, while many people may understand that financial fitness is crucial to their wellbeing, there are several barriers that make it difficult to follow through on their convictions. 

First, many lack the basic financial knowledge necessary to responsibly manage their money. Second, many people mistakenly believe that budgeting, saving and being more mindful of how they manage their money are too time-consuming and tedious. Finally, some people may have fallen so deeply into debt, they’ve begun believing they will never be capable of ever pulling themselves out. 

Here are some simple steps you can take today to help you achieve and maintain financial wellness:

  • Get educated. There is no shortage of financial literacy available to the interested consumer, from financial literacy blogs to personal finance books, podcasts, online classes and so much more. Learning how money works, the power of a long-term investment and how much you’re really paying each time you swipe that high-interest credit card can help you make better choices. 
  • Have the money talk with your partner. Whether you’ve only been sharing expenses for half a year or you’ve been married more than a decade, it’s important to be on the same financial page as your partner. Talk openly and honestly, being careful not to be judgmental in any way, and discuss your individual and shared long-term and short-term money goals. Then come up with a plan for how you intend to reach them together. 
  • Pay all bills on time. If you can’t take aggressive steps toward paying down debt just yet, be sure to make the minimum payment on each credit card bill each month. 
  • Create a budget. Giving every dollar a destination makes it easier to spend mindfully and cut down on extraneous expenses. 
  • Start saving. There’s no such thing as a sum of money that’s too small to put into savings. Every dollar counts, and once you get the ball rolling, you’ll be motivated to pack on the savings until they really grow. 

You give your abs a great workout each day now it’s time to get those money muscles into shape! Follow the tips outlined above to stay financially fit at all times

Your Turn: What are your best tips for maintaining financial wellness? Tell us about it in the comments. 

Five Steps to Take After a Financial Disaster

As we sail into 2021, many Americans are struggling with the aftershocks of financial disaster. Whether it’s due to a layoff, a smaller workload, medical expenses or a change in family circumstances, the financial fallout of COVID-19 has been devastating for people in every sector of the economy.

Recovering from a financial disaster, due to a pandemic or any other reason, is never easy; however, with hard work and the ability to look forward, it can be done. Here’s how.

Step 1: Assess the damage

Take a step back to evaluate exactly how much financial recovery you need to do. Are you thousands of dollars in debt? Do you need to find a new job? Do you have new ongoing costs you will have to cover each month? Are there any other long-term financial implications of the recent disaster, including alimony and IRS liens?

It’s also a good idea to review your overall financial picture at this point, including your current income and ongoing expenses.

Crunching the numbers and putting it all on paper will make it easier to take concrete steps toward recovery.

Step 2: Accept your new reality and stay calm

Shock and denial are valid stages of grief for any major loss or disaster, but in order for recovery to be possible, it’s important to reach a place of acceptance about your new reality. You can vent to a close friend or your life partner, express your feelings in an online journal or a paper-and-pen version, de-stress with your favorite low-cost hobby and then let go. Revisiting the past and constantly harping on what could have been will only drain you of the energy you need to move on.

Tim Essman, a financial professional with West Coast Wealth Strategies and Insurance Solutions in San Diego, also stresses the importance of remaining calm during an economic downturn. Don’t make any rash moves out of panic and fear, he cautions, as the best move in a financial crisis is to keep things stable until you can evaluate the situation and make rational decisions.

Step 3: Outline your goals

Before you get started on the actual recovery steps, define your primary objectives. Are you looking to rebuild a depleted emergency fund? Find gainful employment that will help bring your income back to its previous level? Pay down your medical bills?  Outlining your goals will make it easier to move ahead.

As you work through this step, remember to choose goals that are SMART:

Specific — The goal should be clearly defined.

Measureable — It’s best if there’s a way for you to measure the goal, such as dollar amounts, credit score numbers, etc.

Attainable — Set a goal that challenges you, but is possible to achieve.

Realistic — Your goal should not be completely out of reach.

Timely — A goal without a deadline is just a wish.

Step 4: Create a Plan

You’re now ready to create a full-blown plan to help you reach your goal. Your plan should consist of consecutive steps that lead to a life of complete financial wellness.

Here are some steps you may want to include in your plan:

  • Trim your spending until you can consistently spend less than you earn.
  • Build a small emergency fund to help get you through an unexpected expense.
  • Seek new employment or new income streams, as necessary. Consider moonlighting, blogging or selling stuff online for extra cash.
  • Start paying down debts. You may want to consolidate your debts with an unsecured loan to make this step easier.
  • Save more aggressively, with an eye toward your retirement and another toward a large emergency fund with up to six months’ of living expenses.

Step 5: Make it Happen

It’s time to put your plan into action. If you were careful to set goals that are SMART, you should be able to take the first steps in your plan immediately.

Be sure to review your plan occasionally and adjust it if any changes are needed.

Times are hard, but with a forward-thinking attitude and the willingness to work hard, we can all recover.

Your Turn: What steps have you taken toward financial recovery after COVID-19? Share them with us in the comments.

Learn More:
www.thesimpledollar.com
financialmentor.com
blog.massmutual.com

Improving Financial Health

Steps for improving your financial health

Advice is easy to find465690601 on the Internet; sometimes it’s so easy to find that it’s overwhelming and discouraging. Financial advice is especially abundant, making it hard to sift through when you want to find the best steps to take to improve your financial health. Fortunately, all you have to do is start with the following steps and you will be on the path toward better financial health today.

Personal finance refers to the way that you manage your money now, such as by budgeting, and how you plan for the future, such as through investing. How well you handle your personal finances is your financial health. To improve your financial health, you must take control of your current spending and make sure you have a realistic and profitable plan for the future.

Calculate Net Worth
Some people become overwhelmed by their finances and ignore them. Even if you don’t want to know exactly how much money you do or do not have, it’s important for your financial health that you always stay on top of some basic calculations.

First, take out your calculator and add up all of your assets (the things you own) and subtract your liabilities (the money you owe) from that total. This resulting figure is known as your net worth, a number that describes where you are financially at the current moment.

“Calculating your net worth one time can be helpful, but the real value comes from making this calculation on a regular basis (at least yearly),” according to Jean Folger from Forbes. “Tracking your net worth over time allows you to evaluate your progress, highlight your successes and identify areas requiring improvement.”

Create a Simple Budget
It’s impossible to analyze your current spending and accurately predict your future finances without a budget. Fortunately, budgeting doesn’t have to be complex or time consuming. With a free online tool, such as Mint.com, it’s easy to automatically track expenses and determine how much you spend in various categories per month or week. You can use this information to tighten up on areas where you’re overspending and to determine how much you need to cut back to meet financial goals, such as saving up for a vacation.

Watch out for Lifestyle Inflation
“Most people will spend more money if they have more money to spend,” according to Folger. “As people advance in their careers and earn higher salaries, there tends to be a corresponding increase in spending … a phenomenon known as lifestyle inflation.”

If you want to have a healthy financial future, it’s important to keep lifestyle inflation in check. If you let lifestyle inflation get out of control, it will be much more difficult to save for your financial goals and plan for retirement.

In order to manage lifestyle inflation, be sure to recognize which life upgrades are required and reasonable and which are just a matter of the proverbial keeping up with the Joneses. For example, if you are promoted, you may need to buy nicer clothes, but you certainly do not need a sports car to perform well in your new position.

“Especially if you suddenly got a big jump in your income, keep your former standard of living and funnel the rest into paying off debts or adding to your retirement nest egg,” states Martha C. White from Time. “Since you’re not lowering your existing budget or cutting expenses, you’ll be able to accomplish all this without feeling like you’ve had to cut back or make sacrifices.”

Start Saving for Retirement Now
Because of compounding interest, the earlier you start saving the better. Compounding means that interest your money earns is reinvested to earn interest once more. This repeats each time your account is compounded, so the longer your deposit has to grow, the better.

“Even small amounts can add up over time,” states White. “If you save and invest just $5,000 a year in a tax-deferred account starting when you’re 25 and earn a 6% rate of return, that will have grown to $773,809 by the time you’re 65.”

Set Aside an Emergency Fund
Even if you have a well thought out budget, sometimes expenses arise suddenly that can blow your budget out of the water. If you have a $500 monthly automotive budget and you suddenly need an extra $700 for a repair, you will need an emergency fund to tap into.

One-time emergency expenses are one reason for an emergency fund, but they are not all you need to plan for. Most experts recommend saving enough to cover a few months’ expenses, so that your family can stay afloat if you lose your job or need to take unpaid leave.

Creating a category in your budget for your emergency fund ensures that you will regularly add to it and not use all of your discretionary money before you remember your emergency fund.

“Keep in mind that building an emergency fund is an ongoing mission: Odds are, as soon as it is funded you will need it for something,” states Folger. “Instead of being dejected about this, be glad that you were financially prepared, and start the process of building the fund again.”


Used with Permission. Published by IMN Bank Adviser
Includes copyrighted material of IMakeNews, Inc. and its suppliers.