New Year’s resolutions about taking better care of your health, reducing stress or just “self-care priorities” are all very popular and demonstrate a commitment to improving your well-being. Financial wellness – making a budget, understanding your personal finances or starting a savings plan – usually doesn’t make the list when you’re committed to improving your overall health.
But did you know that financial stress can be a major contributor to poor health outcomes? According to an October 2022 study by the American Psychological Association (opens in new tab), 72% of Americans reported feeling stressed about money at least some of the time in the previous month. Researchers have found that unrelenting stress can lead to physical problems such as headaches and stomach problems, as well as mental health problems such as anxiety and trouble sleeping.
It’s easy to bury ourselves in the sand about finances or rationalize that “retail therapy” is a solution to stress, but we need to recognize that some, or maybe even a lot, of the stress that we can blame on work demands or personal relationships they may actually be unconscious reactions to stress about money that we don’t recognize.
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Ignoring credit card balances, not understanding where your money is going each month or having arguments about money with loved ones can be signs that you need to address your financial well-being as part of your self-care commitment for the new year.
Where do you start to make your financial security an important part of your resolutions for this year? Make sure that small steps are all it takes to make a good start.
Step 1: Build Emergency Savings.
It is common to hear that you need to have three to six months of living expenses in a liquid savings account accessible. If this amount seems overwhelming or would take too much time to achieve, start with the goal of saving a month’s worth of expenses so you can be successful sooner.
Keep in mind that emergency savings are just that – money to use for an emergency. I hear that people are so focused on keeping the emergency savings amount in the bank that they use a credit card when an actual emergency comes up – car repairs, unexpected medical expenses and so on – and then they have to pay interest when they bring a credit card. balance instead of using the money set aside to cover these situations.
It’s good to use the emergency funds (for a real emergency, not just something you want) and then start to rebuild those funds again – that’s exactly what the funds are!
Step 2: Empower yourself with a financial plan.
Financial planning often has a stigma about scarcity. “I can’t take this vacation because I don’t make enough money.” “We can’t afford to live in this neighborhood.” “Budgeting takes all the fun out of life.”
In fact, having control over your financial life can be a great source of self-esteem. Many times, keeping track of what you regularly spend money on, knowing how much money you make and knowing where you could make different choices is the key to making the improvements in life you want possible.
I’ve had discussions with clients where they’re really shocked that they’re spending significant amounts of money on things they absolutely don’t care about. By making simple changes to their spending patterns, they can easily make the things they care about happen – but they wouldn’t even know it was possible without understanding their financial plan. Talk about a huge boost in energy and life satisfaction!
Step 3: Plan for rewards.
Give yourself a treat for achieving those financial goals you set (and budget for it, too!). The key to sticking with our resolutions is to make sure we are enjoying and seeing the benefits of these changes. If you decide that you want to save for an emergency fund or pay off debt, also set aside a small amount of money to celebrate when you achieve this.
One of my friends had a substantial student loan to get an advanced degree. He made a budget with a goal of paying more than the minimum amount each month so that he could pay off the balance as quickly as possible, but it would take more than two years to pay off the entire amount. He knew that he would get frustrated in these two years if he did not plan to have something to look forward to so that they could continue to go.
He put the budget in the monthly payments of the loan and then set aside $ 20 extra a month in a reward fund. Every six months, she sat down and added up the amount she paid for the loan, and if it was more than $10,000, she booked a massage as a treat using the reward fund to pay for the massage. That small amount of money she saved paid for a stress-relieving treatment and, in addition to the satisfaction of making a big dent in her loan balance, helped her stay focused on her goal of maintaining the accelerated repayment schedule.
Making New Year’s resolutions is easy. The key to being successful and keeping the resolution is to actually understand what you are resolving for. Whether you’re looking for ways to improve your physical health, improve your mental well-being, or make self-care a priority, taking the time to understand your financial situation can be a positive step toward making your resolutions a reality even if you start with small steps.
Your financial advisor is a great advocate for you on your journey to lifelong financial wellness.
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