Every family wants financial security. You need enough money to put food on the table and a roof over your head, but how much is enough to be comfortable? Do you have sufficient income to cover all your expenses each month? Are you saving for the future? What exactly do we mean by financial well-being, and what is the best way to achieve it?
When you think about your family’s financial well-being, you need to look beyond your immediate needs. According to the Consumer Financial Protection Bureau, “Financial well-being can be defined as a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow enjoyment of life.”
As part of financial well-being, you need to plan for the future and be able to deal with the unexpected, such as loss of income or sudden illness.
Achieving financial well-being starts with a basic understanding of household finances. A surprising number of Americans lack the financial literacy to manage their finances and plan for the future. Consider that 44 percent of Americans can’t handle a financial emergency over $400, 43 percent of students are defaulting on student loans, 38 percent of U.S. households carry an average of $16,000 in credit card debt, and 33 percent of Americans have no retirement savings. In fact, only 41 percent of Americans have a household budget.
To maintain financial well-being, you need to control daily expenses, have the ability to cope with a financial crisis, and stay on track to meet your financial goals. To minimize financial risk for your family and work toward financial security, consider adopting these strategies to promote your financial well-being:
1. Spend less than you earn. Just because you have the money in the bank doesn’t mean you should spend it. Consider a strategy to make sure you have a surplus with each paycheck and put it away! Spending less than you earn is the result of careful budgeting. Take the time to map out your monthly expenses, including those occasional expenses you know are coming such as annual or quarterly bills. Once you have a list of monthly expenses, you can set up a savings plan.
2. Save for the future. When you plan for future expenses, such as a vacation or a home repair, set a savings goal and put money toward that goal in a savings account. Having a nest egg is one way to alleviate financial worries.
3. Put your savings to work. Putting money away for the future isn’t enough. If you do nothing with your savings, they will lose value over time due to the increase in the cost of living. Today’s inflation rate is 2.54 percent, so if you are earning less than that in interest, you are actually losing money. To hedge against inflation, choose a savings vehicle that lets you earn more. Many savings and money market accounts will offer interest rates that will outpace inflation, but to earn higher interest, consider a long-term CD or IRA.
4. Borrow only what you can afford. Of course, even with savings, there are times when you have to borrow money for a major purchase, such as a car or a new roof. Before you commit to a loan, consider the impact payments will have on your household budget. For example, you may want to consider spending less on a car so you can maintain your savings goals. The same is true with credit cards. If you overspend today, you still have to pay it back tomorrow, and that’s money you won’t be able to put toward future needs.
5. Earn more money. More people are taking on a “side hustle” to earn extra cash. You can put some of that extra money away for other purposes. Also, remember that as you move up the career ladder, you will probably earn more, but your spending will likely increase as well; many people buy a new house or a new car when they get a big promotion. Stay within your budget, and if you can spend less, you can save more. As you get older, you will likely earn more, but your earning capacity does peak. Pay growth for most college-educated adults stops somewhere between the ages of 40 and 49. Don’t wait to save, assuming you will keep making more money—you won’t.
6. Cover your assets. You work hard for your money, so you should protect it. Be sure that you save with an accredited financial institution that can protect your money. Credit union assets are protected by the National Credit Union Administration (NCUA). Also, be aware of any risk with any investments or stocks that are not protected. And insure your valuables such as property and income.Managing your money to ensure your financial well-being isn’t difficult, but it does require some planning on your part. Get help from your local credit union to develop a financial strategy that suits your needs. The financial advisor can help you manage your budget and show you how to make the most of checking, savings, and money market accounts and provide guidance regarding CDs, IRAs, and investments.