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After a busy (and inflation-heavy) holiday season, we all could use a collective exhale. It’s also your chance to take a deep breath in, too: January is financial wellness month, a great opportunity to clear our heads and look at what steps we can take to help make our financial lives better as we move forward from here.
We all know money can be a source of stress, but your finances can also be a source of empowerment. As we start a new year, let’s look at two pillars that can help you build a better relationship with your money and move toward a more secure financial future.
Back to the basics: Budgeting, debt, and emergency savings
Think of yourself as a business. Just like a CEO needs to be aware of the balance sheet and income statement of his company, the first step in improving your personal financial wellness is to understand what you have coming in and what you have going out. From there, you will more readily see what you can do to move yourself closer to your financial goals. Look at all your income sources, debt payments, credit cards, and bills. Separate what is fixed and what is variable—for example, your rent and utilities bills are fixed expenses, but eating out would be variable.
As important as it is to earn money and save, what you’re spending your money on is even more crucial, because if you’re able to lower the amount that you spend over a long period of time and instead prudently save and invest, those habits can add up to more money in your accounts. So, set a simple budget for yourself. A great place to start is the 50-30-20 budgeting rule: 50% of your budget would cover needs, 30% wants, and 20% savings and investments. Break it down by month or by paycheck.
None of this happens overnight. Take a deep breath, create a plan, and follow the plan. Be realistic and check in with your budget and goals at least once a year and update accordingly to understand where you are. One way to help ease the pressure is to work with professionals who can help you assess where you are today and help you figure out creative strategies to reach your financial goals. Your workplace may even offer access to professional financial coaching or advice, or additional financial planning benefits. You’ll never know if you don’t ask.
Investing in the future: Retirement, equity, and your legacy
The financial choices we make today can define our future for ourselves and our families. While balancing your budget, debt, and savings day to day can feel daunting enough, it’s important to also look at the big picture over time, too. This means considering how all the various pieces of your financial life fit together and how they add up in the long run.
Let’s talk about retirement. The biggest challenge for most retirees is going from earning a steady paycheck to living off of investments and savings instead. As the last few years have shown us, turbulence and risk are always going to be factors, and if you’re invested in stocks or equities for retirement, your portfolio could be a little bit more volatile. Market movements can affect your retirement savings, so if you have a retirement plan through your workplace, it can help to talk with your plan adviser or a financial adviser to understand your investment strategy, the risks that you’re exposed to, and how you can stay on track for your retirement goals.
If you receive equity compensation through your employer, that can be another source of fuel for your long-term financial plan. It’s important to really understand the complexities of equity compensation and how the assets that you receive over time can help you meet your goals. One big piece of this is taxes, and how planning and investing can help you reduce your costs and balance against risks in the market. Talk to your employer and your stock plan provider about additional resources to help you plan for liquidity, taxes, and folding any company stock you have into your overall financial plan.
Along with retirement planning and smart investing, give some thought to your legacy. Estate planning is not just for the wealthy—it can be a very helpful piece of the puzzle to help you crystallize what’s most important to you and help you preserve the things you’ve worked so hard for both during and after your lifetime. Again, this might be a good topic to speak with a financial processional about. Think about what you’d like to leave behind and what you can do prepare for the unexpected as you plan for both your short-term and long-term financial goals.
Planning for change: Life happens
The idea of financial wellness is hyper-relevant after the challenges of these last few years. No matter what is going on in your life today, know that there’s never a bad time to start having the conversation around financial wellness and planning. Know that it’s also OK to adjust and be flexible with your money as life events happen. Just make sure to refer back to your plan whenever you’re making a decision and ask how the decisions you’re making with your money today can help you reach your goals tomorrow.
Forming a healthier connection with your money means connecting the dots between every area of your financial life and making sure it is working for you. It may help to speak with a financial professional about your questions, the overall economy, and how your financial choices can help you reach certain goals you might have. Once you have that planning in place, it’s going to make it that much simpler for you to make financially healthy decisions each day.
Krystal Barker Buissereth is managing director and head of Financial Wellness and Participant Experience, Morgan Stanley at Work.
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