Reflect on your Financial Well-Being

Did you know that August 14th was National Finance Awareness Day?!

While the origins of this day seem to be clouded and mid-August may not be the most ideal time to encourage people to pause and revisit their personal finances, here at Strategic we can get behind the intent. Let’s look at how this can be a great reminder for all of us.

Why does National Finance Awareness Day exist?

In understanding why this day might exist, we don’t need to look very far. 78% of American workers are living paycheck to paycheck. 72% of people indicate money/finances as their number one source of stress in life. And even more concerning is that over half of Americans do not engage in any type of regular financial planning. Combine those statistics with current headwinds of inflation and higher interest rates, and the case for paying attention to one’s personal finances is more than convincing.

Much like health and fitness, personal finance principles are simple to understand but challenging to put into practice and maintain. Just as we aim to eat better and exercise regularly, we should also focus on spending less and saving or investing more wisely. Sounds easy enough, but we live in a world filled with temptation and distraction.

At every corner, advertisements, algorithms, and social influences are vying for our money. We are encouraged to take out a loan or open a new credit card just to save 5% on a retail purchase. In addition, the investing world is often overcomplicated and confusing when it simply doesn’t need to be.

One of the best ways to combat these temptations is through creation of simple habits and behavioral changes which can lead to lasting impact. Most of us can ask ourselves – “What are the 3-5 things I can do to help me change course, gain some momentum, and head for a better life?”

What are some best practices?

Whether you are spending mid-August on family vacation or grinding the last Dog Days of summer, let’s celebrate National Financial Awareness Day by taking a pause for a refresh on some finance best practices.

1. Organize & Categorize: If you don’t know where to get started, a valuable exercise is to simply list your income and expenses for a period of time (i.e. one month or one quarter) to see where you are. Separate your expenses into needs or non-discretionary, lifestyle or discretionary, and other items which could include savings or one-time/irregular occurrences. Several tech tools are out there to help in this process including some bank/credit card sites. This same organizational practice can also be done with assets and liabilities. List what you own/owe, where it is, and the values.
2. Set Budget Parameters: Famed investor Warren Buffet says, “If you buy things you don’t need, you will soon sell things you need.” Start with the most important items (shelter, food, clothing), then move to things that provide safety and comfort (utilities, transportation, debt-repayment) and then onto everything else. One common approach is the 50/30/20 method which suggests 50% of your take home income be used for non-discretionary spending, 30% for lifestyle spending and the remaining 20% be used for savings/investing for goals or as a buffer for the unexpected.
3. Emergency Reserve: The only certainty in life is uncertainty. Establishing a reserve fund helps cover those unforeseen expenses like a job loss or home repair, without having to swipe your plastic or borrow against assets (house, 401(k) plan). It’s recommended that you have 3-6 months of your non-discretionary expenses (mortgage/rent, utilities, loan payments, taxes, basic food and clothing) as a target. Be sure to refill the coffers once they are tapped. If you save enough, you may be able to make an outright purchase versus taking on a loan.
4. Cash over Credit: Some studies show that we are willing to spend up to 83% more when using a credit card vs. cash. It’s been proven that pain receptors in our brains are triggered when using cash, which may could lead to more disciplined spending. Try using a debit card only, prepaid credit cards or good old fashion cash. Remember, though you may miss them, no one has ever retired on credit card reward points!
5. Pay Down Debt: If you find yourself already in debt, author Dave Ramsey offers up the “snowball method” for debt management. Instead of prioritizing debts with the highest interest rate, Ramsey suggests paying the minimum amount on each of your debts and then applying all available funds towards the smallest debt balance. Once one debt is eliminated the process continues to the next smallest balance. Small wins build confidence and increase the likelihood of staying with the program until the debt is gone.
6. Save For Retirement: While you can borrow for most things in life, when it comes time to retire, you either have enough or you need to keep working. The instant gratification of purchasing something now makes it easy to put off or ignore long-term savings goals. Take advantage of your company retirement plan, particularly if they are willing to match some of your contributions. Use tax advantage investment vehicles like IRAs, Roth IRAs, and HSAs. Most importantly, don’t wait too long to get started, compound returns over many years can build significant wealth for your retirement pool.
7. Get a Coach: Think of a financial advisor the same way you would a personal trainer or business coach. None of the items listed above will lead to full financial wellness on their own. Packaged together with the inspiration and accountability of an advisor, they can lead to lasting results.

National Finance Awareness Day serves as a vital reminder for individuals to take control of their financial well-being. By adopting simple financial habits and best practices, such as budgeting, saving, and consulting with financial advisors, people can significantly reduce financial stress and build a more secure future. Let’s use this day as an opportunity to reflect on our financial health and make positive changes that will benefit us in the long run.

Conclusion

National Finance Awareness Day serves as a vital reminder for individuals to take control of their financial well-being. By adopting simple financial habits and best practices, such as budgeting, saving, and consulting with financial advisors, people can significantly reduce financial stress and build a more secure future. Let’s use this day as an opportunity to reflect on our financial health and make positive changes that will benefit us in the long run.

The information provided in this article is for general informational purposes only and does not constitute financial, investment, or legal advice. While we strive to ensure the accuracy and relevance of the content, the financial strategies and recommendations discussed may not be suitable for all individuals and should not be relied upon as a substitute for professional advice tailored to your specific circumstances.

Before making any financial decisions or changes to your personal financial plan, we strongly recommend consulting with a qualified financial advisor who can assess your unique situation and provide personalized advice. Past performance is not indicative of future results, and all investments carry risks, including the potential loss of principal.

Remember, financial planning is a dynamic process, and periodic reviews of your financial situation are crucial to ensure that your strategy remains aligned with your goals.