October 4, 2023

The Most Commonly Ignored Tips in Achieving Financial Wellness

by Heather Knight, Financial Aid Representative

January is Financial Wellness Month. A perfect time to prepare for the year ahead, while looking back at 2016 in preparation for tax season. Financial literacy is something that most of us could stand to continuously improve upon. So, in honor of this month, here are some important guidelines to help you the entire year and beyond.

Perhaps the most sage advice toward financial wellness is also the least likely to be followed. Just like adopting a healthy diet or exercise regimen, we know it’s good advice but it’s just so hard to commit ourselves to health when chocolate cake is everywhere and the new season of Game of Thrones is available on Netflix.

The first tip is one you’ve likely already heard: create a budget. If possible, make use of personal bookkeeping software to enter and categorize all your expenses as well as your incidental purchases. Include not only your every month expenses, but also a monthly amount for regular expenses that you pay yearly or quarterly (i.e. membership fees, subscriptions, auto registration, etc.). Be as realistic as possible about variable expenses (I.e. groceries, entertainment, etc.), but be sure your budgeted expenses do not exceed your expected income.

A sound budget includes a dedicated savings plan. Even if you don’t have a large purchase in mind for the future, sowing away 3 months’ worth of expenses in savings has been suggested as a good safety buffer in the event of unexpected loss of income. Bonus tip–even a 1 month buffer in the bank can help protect from late pay fees, an all too frequent expense endured by people whose payment due dates fall before payday.

The second tip is actually bound so closely to the first that it may be inseparable: stick to your budget. This tip is almost always where good intentions go astray. Oh chocolate cake, you tempt us so! If you didn’t budget for it, resist that temptation to buy for convenience or because you think you’re getting a good deal. Bring your lunch from home instead of going out for fast food. A sale price on shoes is no deal if you already have three pairs. Ask yourself why you really need that new phone upgrade, that sweet new tech toy, that bright shiny whatever that calls to you from the mail order catalog. Pretend it’s someone else asking you to lend them money for that purchase and don’t give in to any reasoning you would not accept from them. If you wouldn’t loan for it, don’t own it.

Make time to review your budget status and reconcile your statements every month. This will show you right away where you are overspending. If you exceed your budgeted amount for groceries one month, get tougher with your next month’s shopping. Forgot to include little Sophie’s dance class fees? Make an adjustment to include it next month and be sure you reduce your budgeted spending somewhere else to stay balanced. Bonus tip–never rob from your savings plan to absorb unexpected costs! If you drain away your savings, you will soon find yourself in crisis mode.

This leaves the third most often ignored sage advice toward financial wellness: reduce borrowing. Borrowing includes not just loans but also daily credit card use. Every credit purchase increases the cost of that purchase in exchange for time to pay.

Forgetting that credit costs is like driving a mile out of your way to save .05 per gallon on gas, then spending $2.00 to buy a soft drink at the convenience store. Most cars have between 10 and 15 gallon tanks and a 2-liter of name brand cola is about $1.50 on average, Assuming you filled up from empty, then you saved about $.50 to $.75 on your gas, but overspent on your cola by $1.25. That’s a mile out of your way to throw away money. This is analogous to everyday credit card use, especially where the credit balance is never fully paid off. Most credit cards carry rates of 12 to 22% APR. Carrying a balance on a credit card adds more cost each month because interest is charged on that same money again and again as long as the balance is unpaid.

If you must borrow, keep it small and pay it off as quickly as you can. Take time to add up what borrowing really costs you. Read the loan contract, ask questions, and make sure you fully understand the total amount you are agreeing to pay before you sign. Paying off credit cards in full every month can avoid interest charges. Already in credit card debt? Include a payoff plan in your budget. Bonus tip–this is the one expense where it is often smarter to sacrifice some of your budgeted savings amount to pay off credit debt.

So there it is, the three best (and most ignored) tips for financial wellness. Just like a healthy diet and exercise plan, persistence and consistency are your keys to success.