Here are five steps you can take right now to make a meaningful difference and create momentum towards a lifetime of financial wellness:
1) Look for ways to reduce spending to live within your means.
If you’re not sure if you’re living within your means, the first step is to track your spending and see where your money is actually going because it may be very different from what you estimate.
2) Make sure you’re adequately protected.
Set all bills in auto-pay. If you don’t have enough savings to cover 3-6 months of necessary expenses, set up an automatic monthly transfer to your emergency fund of whatever you can afford to save (see #1 above). Finally, make sure you have adequate disability, life, and long term care insurance coverage and up-to-date estate planning documents.
3) Make a plan to tackle any high-interest debt.
If you have any debts with interest rates above 4-6%, consider refinancing them with lower interest credit card balance transfer offers or home equity, retirement plan, or peer-to-peer loans - but be aware of the downsides of each. (You can also let your creditor know you’re thinking of refinancing and see if they’d be willing to lower the interest rate for you.)
4) Get on track for retirement and education funding goals.
At the very least, try to contribute enough to your employer’s retirement plan to max any match you can get or you’ll leave that free money on the table. Unless you’re still building up savings for emergencies or a home purchase or paying off high-interest debt, you’ll then want to make sure you’re saving enough to hit your goals.
If you can’t afford to save enough right away, try slowly increasing your contribution rate over time. Many employer-sponsored retirement plans have a contribution rate escalator feature that lets you do this automatically.
5) Invest wisely.
Instead of chasing past performance or trying to time the market, pick an asset allocation strategy (fancy way of saving how much you put in different types of investments like stocks, bonds, and cash) to match your time frame and personal risk tolerance. The simplest way to do this is with a target date fund for retirement or an age-based allocation portfolio for education savings since- they are fully-diversified one-stop shops that automatically become more conservative as you get closer to the target retirement date or education age.
In any case, look for low-cost investment options. If you have a lot of money in a taxable account, you’ll want to create a tax-efficient portfolio or work with a financial advisor who can.
If this seems like there’s a lot to do, that’s because there is. As with improving your physical wellness, financial wellness is not something that can be achieved overnight. It’s a lifelong process of continual growth and adaptation that begins with a simple step. Which one will you take first?