Financial Well-Being. What is it? Do you have it? The holidays have come and gone, and as most of us go back to work (or go back to working at home), it’s a critical time for recalibrating and improving the way we manage our personal finances.
Two years into a global pandemic, health is on everyone’s mind this year. But there are many aspects to your personal health and wellbeing. Managing your finances properly is one of the most effective and accessible ways of improving your everyday life.
With that in mind, here are 10 ways you can improve your financial health in 2022, along with our estimates of how much time and effort each of these activities needs to be a success.
(Est: 2 Hours Per Month)
Whether you choose to use “Zero Based Budgeting” or a more flexible category-focused approach, budgeting is an oft-overlooked but crucial skill that can help improve your financial health with a moderate time investment. The “granularity” or specificity of your monthly budget is up to you. In the past, I’ve gone so far as to break down my spending on different categories of entertainment such as “cinema,” “fast food,” and “restaurants.”
Experiment and play around with Wallet’s budgeting tools in order to identify the best level of detail for you personally. The idea is not to guilt yourself into not spending money. That sucks, and it’s no fun. Financial well-being is about fun too.
The goal is instead to allow yourself to spend a planned amount of money, guilt free, on things you find important. Deciding ahead of time what each area of your budget is worth to you personally is a great way of aligning your personal priorities with your mental health and financial wellbeing. Who knows? Maybe you don’t spend enough on the good things in life.
Set and Use More Categories
(Est: 5 minutes a day)
It’s hard to budget properly if you don’t know what counts as what. Wallet by BudgetBakers has a large library of spending categories, but the app depends on you to divy up your spending according to which category each items belongs in. You are free to use as many or as few categories as you like, an it’s also possible to set sub-categories to get even more clarity on your spending.
Wallet works using machine learning to adjust its automated categorization based on your behavior. So teach Wallet how you want your categories to work. This will pay dividends as your categories become more clear, and within a matter of weeks, you’ll find it takes no work at all to keep them organized.
(Est. 30 Minutes Per Week)
Did you know you can plan upcoming payments with Wallet, including by turning existing payments into recurring ones? Many of our customers don’t use this feature, but they should! There are usually a whole bunch of items that come up on a regular basis – usually monthly. Understanding and categorizing each of these, as well as planning your cash flow in advance will help your financial well-being in the long run.
Optimize Debt Repayments
(Est. 2 Hours Once)
First accept this controversial but ultimately freeing realization: debts are not bad. Yes, no one likes to have debts looming over their heads, but the fact is that the world as we know it is built around debt. Many of you have student debts, even more have mortgages, car payments, credit cards, or payment plans.
With inflation rising in most OECD countries, you have a unique opportunity right now to realign your debt repayment plan around your financial well-being. Not all of these debts are equal. Here’s a simple formula: if your interest rate is lower or equal to the projected inflation rate in your country, then you should keep paying only the minimum payments on that debt. If your interest rate is higher than inflation, you should pay as much of that debt as you can as soon as you can.
Why does this matter? It’s simple: if your interest rate is below inflation, that means that the principle amount you owe the lender will, in effect, be smaller a year from now, even if you didn’t pay any of it back. If the interest rate is higher than inflation, you’ll owe more in a year than you owe now, all else being equal.
We’ll get to how to optimize your debts further in a later point, but an important question is to ask yourself whether you are optimally paying back your debts. It’s not the size of a debt that matters, it’s the rate at which that debt grows or shrinks. You want debts to grow slowly or not at all. If they’re shrinking, so much the better!
Check Your Credit
Building on the previous point, managing your debts properly will affect your credit rating. This works differently in different countries, but most developed countries have a credit rating or evaluation system that helps banks and other lenders understand your credit worthiness.
As unfair as it sounds, a person with a better handle on their credit will also get cheaper loans and more favorable terms. Therefore it’s very important that you check your credit scores and history, and make sure you’re not missing anything important in your payment history. Making sure your credit report is accurate will help you to qualify for better financial terms in the future.
(Est: 5-10 Hours)
And here we loop back to the debt management as a part of financial well-being. If your credit history is good and your score is high, then you may be able to borrow money more cheaply than you currently do.
Why does that matter? Because depending on how much you owe, getting cheaper debt can vastly reduce the amount of money you end up paying lenders for the same amount of money. For example, if you carry credit card debt from month to month, you’re often paying up to 25% of the principle on that debt every year.
If you’re able to consolidate your debts at a lower interest rate, you can often save a huge amount of money. Your debts will disappear faster, and your credit will only get better, allowing you to lower your debt burden even further. If you’re carrying credit card debts, but you have home equity or other collateral, you may qualify for a much better loan that will stop your higher premium payments, and make your debt *much* more manageable.
With home prices rising and inflation surging, if you’re a homeowner, you may have the chance to refinance your debts and consolidate. Talk to a loan officer at your local bank or credit union, and you may find that they are able to help you make your burden much more affordable.
Cancel and Renegotiate
(Est. 30 Minutes Per Item)
There’s an old saying in business: every year, double your prices and fire your worst client. Financial well-being is not just about doing more, but also about doing less. So at the risk of encouraging our own customers to cancel their subscriptions, you should go through your monthly payments, and in many cases, cancel or renegotiate your payments.
Electric, internet, gas, phone, and even car leases can often be renegotiated when the customer announces they’re looking to move to a competitor. Who knows? Maybe you’re leaving money on the table. Just please don’t ask us for a yearly discount! You can already buy Premium Lifetime for the price of a year on the web… 🙂
Automate Your Savings
This one’s easy. Pick an amount that you’re comfortable with, and set an automatic payment to your savings or money market account every month. A buffer of 4-6 months of salary is generally considered healthy, and it will allow you the personal satisfaction and freedom in the knowledge that you could always quit your job and be ok for some time while you look for another.
Don’t prioritize savings over debt payments, particularly if you have any high interest debts (you can always borrow in the future, but you’re paying for the privilege of owing this money now), but if you’re ok in the debt department, then start saving!
Make Sure You’re Insured Properly
(Est. 3-4 Hours)
If you’re a family person, or a homeowner, then you know that your financial well-being is about more than just having money in your bank account. Big expenses can crop up that will kill your savings and budget. That is, unless you’re insured against sudden huge shocks.
Homeowner’s insurance, personal liability insurance, and an active life insurance policy will bring you peace of mind, and security against sudden expenses. If you have an active life insurance policy, particularly if you’re self-employed, you can even get benefits in the event that you become unable to work or pay your mortgage or other obligations. Talk to a trusted insurance broker to make sure that you’re carrying the appropriate amount of insurance. You may be surprised, particularly if you’re still young, how affordable good insurance can be.
Lease Your Depreciating Assets
(Est. 2-3 Hours Per Item)
I know, I know. You’re a member of the PC master race, and you have to have the latest graphics cards and monitors to get the most out of that Call of Duty subscription. Do what you think is best, but consider not buying expensive depreciating assets such as computers, phones, tablets, cars, and other items that tumble in value every month. Many markets have these items available for very reasonable monthly payments, with the added benefit of loss and breakage insurance, and a replacement item every year or two.
Owning can often be financially advantageous, but the truth is that it carries risks many of us can’t afford. Ask yourself: can you afford it if your latest iPhone falls and breaks? If not, maybe you should be leasing one that is insured in case that happens.