How Does Financial Wellness Work?
When I started working on my money life, I wasn’t sure HOW to get healthy with money. The terms were mysterious to me and I thought the feelings of fear and shame would eat me alive. I developed this formula of the 3 essential elements of financial wellness over a decade of research. These are the essential components to making it work well.
Elements of a Financial Wellness game plan:
1. Know your net worth. Assets minus debts. It really helps to have that as a starting point. It’s the “YOU ARE HERE” on the map of your financial health.
2. Create a monthly, predictive spending plan. (It’s like a budget, but sounds less restrictive!)
3. There will be a baseline of income and expenses, probably, that stay relatively similar from month to month. However, we look at the calendar of the month ahead to see what special items need to be accounted for in the spending plan.
4. Have an accountability partner. Someone with whom you can be honest, and who possesses at least some of what you want in your money health. This is likely not someone who has the stock answer of, “Oh, go ahead and buy it. You deserve it.” This is someone who is able to know how important it is for you to reach your goals, and knows that instant gratification is rarely going to be the best answer. I still send my monthly plan to my accountability partner, every month. When I know that someone I trust has seen my plan, I am about 300 times more likely to stick with it.
5. Write your goals somewhere you will see them at least each month. Maybe set a reminder in your phone. I currently have a goal of getting my net worth to increase past a certain number this calendar year. This helps me weigh out how much I actually want to buy something, and colors how loose or tight I choose my monthly spending plan numbers to be.
6. If you’re a 1099 contractor, keep up with your profit and loss statement monthly, and put aside estimated taxes into their own savings account so the money is there when it’s time to pay your quarterlies. (A very rough rule of thumb is you can expect to have to pay at least 20% of your net profit, which is gross profit minus deductible expenses.)
7. Set up a system that works for you (such as YNAB.com, QuickBooks.com or FreshBooks.com if you invoice your small business clients, or Mvelopes.com) to track your expenses and be able to tie them back to your spending plan. Some people even use cash in category-designated envelopes. (So retro! So effective!)
8. I have a weekly, what I call, Numbers Lounge. It’s a designated time (at least half an hour, usually) to look at my accounts, balance my checkbook, update my categories and make sure I’m on track for the month. I generally do this on Sundays. Pick what works best for you practically, and make a recurring appointment in your calendar if you need reminding. Some of my clients have Money Mondays or Fiscal Fridays.
9. I do suggest hiring someone to do your taxes, if it’s anything beyond 100% straightforward. I used to do mine through Turbo Tax, and have been relieved to have a professional handle it instead. I still need to have my information organized and provide it in a timely manner. But for the nitty gritty of changing tax laws, it seems wisest to get a good specialist for the annual task of filing income taxes.
10. Patch the leaks. Many people have money pouring out of their accounts, without being aware of the impact of them adding up. $20/month here and there to 4 different companies sounds a lot different than $960 per year!
11. I highly recommend Simple Bank for personal banking. I have been delighted with their no-fee account. If you'd like to try it and see if you like the interface, use this link and we both get $20 as a gift!
Those are items that I think apply to everyone.
Then after those are taken care of, the fun of personalizing your system begins! Some people need support to loosen up and discard some of the fear that has them be perhaps too conservative with their financial choices. Yet others are very good at spending money, and might benefit from tips and strategies to practice not spending when they usually would. So often couples benefit from having a neutral third party to navigate ongoing disagreements about money. Finding agreement on a spending plan that everyone can live with is truly wonderful.
What I remind people (myself included), is that there is no WRONG choice. Also, I can change my system if and when I need to, when I get more information or my preferences change over time. We have a variety of right options that will lead us to different pots of gold at the end of whichever rainbow.