Take Care of your Financial Health: Strategies for Financial Wellness

stethoscope-1584223_640Ever since the financial crash of 2008 people all over the world have lived with greater financial uncertainty. There are so many issues that ordinary working people face on a day to day basis that it can be very hard to look beyond the next paycheck. Meanwhile, financial offers seem attractive but hard to understand, so they can always be put off until tomorrow. All this adds up to one recommendation: take a day off from everything else and spend it reviewing your finances and making some plans for the future.

Know Where You Are

The best place to start with financial planning is where you are now.

Draw up, on paper or a spreadsheet, a detailed list of your income and expenditure. It may take some time to keep track of your expenditure, but it is an essential step to getting it under control. If your expenditure exceeds your income, you need to draw up a budget that will reverse that. Once your income exceeds your expenditure, you can start to plan ahead.

Know Where You Want to Be

Look ahead and decide how you would like your financial situation to look in 10, 20, 30 years’ time. This will give you an incentive to get things in order, and it will also give you clues as to what your financial priorities are, which will help with the planning.

Your Home

Most people’s biggest financial commitment is their home. If you are a homeowner, you should have a rough idea what the value of your house is, and what your outstanding mortgage is.

Because a mortgage is such a large part of your finances, small differences can add up to big savings. Make a habit of checking your current mortgage against re-mortgage opportunities, and see if there are worthwhile advantages to changing.   For those on the West Coast, a reverse mortgage in California might be a good option.

Your Car

Some economists warn that the car leasing market is the new sub-prime scandal waiting to happen. Car leasing schemes are very attractive at first glance but come with many caveats.

One attraction of leasing is that you never have to worry about maintenance and mechanical repairs, but you are paying for that privilege. Think how much you can save by learning to do maintenance jobs yourself. A Volkswagen owner, for instance, can undertake a lot of work with the help of a good VW repair manual.

Pay Off Your High-Interest Debts

Once you have got your income and expenditure under control, you can begin to work on other areas. Your first priority is to cut the debts that are incurring a lot of interest, especially credit cards. These can be a big drain on your available resources—reduce them and you immediately have more disposable income. It may take time but you will see tangible results by reducing your balance month on month.

Build an Emergency Reserve

When you have reduced your expensive debts, resolve to set aside some rainy day money. Cash savings do not pay much interest at the moment, but having easy access to money will mean that you will not need to borrow if unexpected costs arise, like losing your job, crashing your car, or facing uninsured medical treatment.

Aim for a reserve fund equivalent at least 3 months expenses, more if you can manage it.

Plan for Retirement

For most people, retirement planning is a compromise between the lifestyle you would like in retirement and the money that you can put into your savings now. Two basic rules apply:

  • The growth in your pension fund is compounded. That means that the sooner you can start saving for retirement, the greater your returns will be. Even quite a small amount put into a fund can grow significantly over 40 years. The longer you wait, the bigger is the proportion of your income that you will need to save.
  • Pension savings bring significant help from the taxman, and often from employers. If your employer offers a 401(k) scheme and makes a contribution towards it, this will be a good option in very many cases. However, others might prefer the potentially lower cost and higher flexibility of an Individual Retirement Account which also brings tax benefits.

In for the Long Haul

Financial planning is not something that happens overnight. It is a matter of being realistic and setting priorities that will work out over many years. Circumstances change, and your plans will need to change with them. But once your have got control of your finances, do everything in your power never to let go.

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