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As Americans continue to deal with financial stress caused by rising inflation, high gas prices and rising food costs, taking inventory of your current finances and preparing for the unexpected will help you make more informed decisions about your finances and set new financial goals. may help determine.
according to a 2018 Financial Efficiency Report From FINRA, 53% of Americans reported that thinking about their finances made them anxious. However, given the economic impacts of the pandemic, including supply chain issues and rising inflation, it is likely that those numbers are even higher today.
If you share that concern, it’s important to understand that running away from your finances is not the answer. In fact, it’s quite the opposite. Practicing financial wellness will help ease your anxiety as it empowers you to take charge of your finances and work towards setting yourself up for a brighter future.
8 questions to help you with your financial wellbeing
This checklist is a list of questions that will help you determine where you stand financially and what your goals should be for the future.
Everyone’s situation is unique, so no two checklists will look exactly alike, and this is not a one-time activity. You should review it at least once a year to make sure you are still on track to meet your financial goals.
Here are the key questions you’ll want to ask.
Am I saving enough money for emergencies?
As a general rule of thumb, it’s a good idea to have enough money in one saving account To cover expenses of 3 to 6 months. The goal is to have enough money to cover a big unexpected expense or keep you afloat if you lose your job.
If you are struggling financially, saving a little can also be helpful. Erin Ellis, an accredited financial counselor at the Philadelphia Federal Credit Union (PFCU), believes it’s more important to build a habit of saving money consistently than how much money you can withdraw at any given time.
“Think about setting a goal to add money to your savings account on a monthly basis or each time you get paid,” she advises. “It may take a while [build up your fund] And sometimes you might need to dive in, but if you start the habit of saving consistently, you’ll eventually get where you want to be.”
Read more: How to Build an Emergency Fund
Am I spending more than I earn?
According to Enzo Pellegrino, certified financial planner and founder of TLWM Financial, the easiest way to determine whether you’re spending more than your amount is to keep track of your account balance. If they are growing over time, you should be good to go. If your account balance is getting low, it can be a warning sign.
Still, it’s important to note that overspending isn’t simply due to lifestyle creep or spending more as your income grows. It’s also the case that your dollars may not stretch as far as they used to. According to the Bureau of Labor Statistics, food prices are up 10.8% year-on-year from April 2022, representing the largest 12-month increase since 1980.
Similarly, the cost of housing is also increasing. pew research center found that 46% of American renters spent 30% of their income on housing costs, and another 23% spent 50% of their income just to have a roof over their heads. Since then, those numbers are likely to increase, as CoStar Group, a real estate data source, found that rents have increased. 11.3% last year at the national level.
If you’re having trouble spending more, Pellegrino says it’s important to budget. Namely, the process involves cutting down on unnecessary expenses or finding ways to bring in additional income. However, whenever possible, he says it’s best to try to live below your means in order to avoid the temptation to spend more than you have on hand.
While he acknowledges that making these decisions can be difficult in the short term, he believes that the added security from meeting your financial goals will be worth the effort in most cases.
What is my credit score and how can I improve it?
Unfortunately, there is no one-size-fits-all solution for this. credit score improvement, if you have a collection account on your credit report, building credit for you can be more challenging than for someone who is just starting out and has no negative marks on his report. Ellis stresses that it’s essential to make all of your payments on time, including credit cards, medical bills, student loans, and buy now, pay off purchases later. According to FICO, only one delayed payment that is 30 days old Can take more than 80 points off your credit score If you have excellent credit.
In addition, he also feels it is important to pay more than minimum payment As you can every month. Ideally, you should try to pay off your credit card balance in full, but if you’re unable to do so, he suggests paying more than you spend to reduce the total amount you owe. gives.
Do I have a loan repayment plan?
If you don’t have a balance, Alice thinks Making a plan to deal with your debt is necessary. However, the plan may differ depending on how many balances you have in your name and the interest rates on each of those accounts.
“If you only have one outstanding balance, the plan is very simple. You just pay the largest amount until the balance is paid in full,” she says. On the other hand, if you have multiple loans, it is a good idea to follow a loan payment plan.
The method suggested by Ellis is commonly known as the minus avalanche method. You make minimum payments on all of your accounts, except for the account that carries the highest interest rate. For that card, you’ll want to make as large a payment as possible, and you’ll keep doing so until that balance is paid off. Then, use the same method on the account with the next highest interest rate.
The downside of the debt avalanche method is that it can take some time to see substantial progress, especially if the balance on your highest-interest loan is large enough.
If you prefer instant gratification, you may want to try using the debt snowball method where you settle your smallest balance first. This method lets you experience a series of small victories at the beginning of your debt payment journey, which can help you stay motivated to keep making progress.
How much is my retirement savings worth today?
When it comes to retirement savings, Pellegrino says it’s about knowing where you stand today and how much money you need to live comfortably after the time you retire.
“Think about how much you’ll want to spend on a monthly basis when you’re ready to retire. Then, take some time to figure out how much money you’ll get from non-investment sources like Social Security,” he says. suggests. “The difference between those two numbers is the amount you should be aiming to save for retirement.”
While this advice may sound daunting, especially with the way the stock market has fluctuated recently, it’s important to remember that saving for retirement is a long-term goal. Making a habit of regularly contributing to your accounts will really make a difference in the long run.
if you just started savingEllis recommends exploring any options your employer may offer, such as a match incentive program that will help you grow your savings or an automatic deduction from your paycheck.
Even if your employer doesn’t offer a retirement plan, you can still prepare by opening a tax-advantaged retirement savings account yourself.
Roth IRAs are a popular place to start because they allow you to make tax-free withdrawals, meaning you pay taxes the year you take money out of the account, rather than the contributions you make.
However, they are only available to people with low incomes. For example, if you’re a single-filer under age 50 and your modified adjusted gross income (MAGI) is less than $129,000, you can contribute up to a limit of $6,000 for tax year 2022. Higher earners may be able to contribute a lower amount, but those earning more than $144,000 are disqualified to contribute.
You can also contribute to a traditional IRA or 401(k). However, you need to be prepared for taxes when you are ready to withdraw money from your account.
Do I have disability protection if I can’t work?
as the name suggests, disability protection Have an insurance policy to help provide you with income if you become disabled and can no longer work. There are generally two types of plans to consider, short-term disability insurance, which is meant to provide you with temporary illness or injury, and long-term disability insurance, which is more permanent.
Both the experts recommend availing any plan offered by the employer. Typically, those options will be more affordable and may have fewer restrictions than policies offered by insurance brokers. Bureau of Labor Statistics found that short-term disability insurance typically costs around $0.05 per hour worked, while long-term disability insurance costs about $0.06 per hour worked.
Once you have an idea of your options, add up your monthly expenses and compare that number with the income from the plan that is being offered to you. If you are self-employed or need additional coverage, you can purchase disability insurance through an insurance broker. Be aware, however, that these programs come at a cost and insurers may impose certain eligibility requirements.
Is my life insurance coverage enough for my family?
life insurance To provide financial assistance to your loved ones in case you die unexpectedly. While there are many different types of life insurance to choose from, people generally choose either a term policy, which lasts for a set number of years, or a full policy, which lasts as long as you pay your premiums. Will keep paying
The need for life insurance depends on individual factors. As a rule, if you will forgo any expenses after you die, you should consider getting a policy to cover those costs. Then, the next step is to determine how much coverage you need. For that, Pellegrino recommends considering the costs of some of your biggest expenses.
“Think about whether your house needs to be paid for, if your kids need to go to college, if your spouse will need to depend on your retirement income,” he advises. “Adding those costs together will give you an idea of how much coverage you might need.”
Do I have a will and is it up to date?
If you don’t currently have a will, Pellegrino recommends making a will as soon as possible. He cautions that, if a will is not left, your state will usually be in charge of what happens to your property. This process is better known probate, Additionally, each state has different rules for determining how probate works, so the process can often be expensive and time-consuming.
“Most people have worked too hard to have someone else decide what will happen to their assets,” he says. “That’s why it’s so important to have the right documents.”
Once you have made a will, he suggests that you review it at least once a year. Some years, it may stay the same, but if any of your wishes change during the year, it’s best to update everything ASAP.