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12 Steps to Improve Your Financial Wellness

September 2023

Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension

Financial wellness is the ability to manage day-to-day finances and stay on track to meet long term goals (e.g., a comfortable retirement). People who are financially well: 1. have money when needed, 2. live within their means, 3. save money regularly for emergencies and short-term goals, 4. invest for long-term goals, 5. have no debt or manageable debt, 6. have adequate insurance, and 7. have current estate planning documents.

Want to improve your financial wellness? Follow these twelve tips shared on a recent Rutgers Cooperative Extension Department of Family and Community Health Sciences (FCHS) webinar:

  1. Have Enough Money to Pay Expenses- Three ways to improve cash flow are increase income, reduce expenses, or do both. Ideally, no more than 15% to 20% of net pay should be spent on consumer debt payments and no more than 40% to 50% of net pay for housing and consumer debt payments combined.
  2. Set Aside Money for Emergencies- The recommended minimum emergency fund is three to six months of essential living expenses but any savings is better than none. Keep the first three months very liquid.
  3. Write Down Financial Goals- Written goals (PDF) provide an incentive to save and a "reality test" for vague dreams. Include a specific cost figure, a time deadline, and progress checkpoints along the way.
  4. Follow a Spending Plan- Also known as a budget, a spending plan (PDF) starts with tracking income and expenses for a month or two. Tweak the numbers until Income = Fixed Expenses (e.g., rent, loan payments) + Flexible Expenses (e.g., food, gas) + Occasional Expenses (e.g., tuition, insurance premiums).
  5. Know Your Federal Marginal Tax Bracket- Federal tax rates on the last dollar of someone's income currently range from 10% to 37%. Knowing where you stand can inform tax planning strategies.
  6. Calculate Your Net Worth- Net worth (assets minus debts) provides a "snapshot" of someone's finances on a particular day. Be sure to use current market value for savings, investments, and personal property.
  7. Save/Invest Regularly- Investing is essential to fund long-term goals. Ways to start include stock or mutual fund automatic investment plans, employer retirement plans, and checking to savings account transfers.
  8. Kick It Up A Notch- This means increasing your current saving/investing rate. The two best times to do this are when income increases and household expenses end or decrease (e.g., child care and a car loan).
  9. Open a Retirement Savings Account- Options include a Roth and/or traditional individual retirement account (IRA), an employer plan (401(k), 403(b), 457, and TSP), and a SEP if self-employed.
  10. Diversify Your Investments- This can be done by selecting more than one asset class (e.g., stocks, bonds, cash, real estate, etc.), different investments within each asset class (e.g., large and small company stocks), and investments that are already diversified (e.g., mutual funds and exchange-traded funds).
  11. Purchase Adequate Insurance- Covering large risks that can wipe people out financially is essential. Examples include liability, disability, large medical expenses, and destruction of a home or property.
  12. Comparison Shop and Negotiate- When major purchases are involved, it is smart to follow the "Rule of Three" and compare at least three vendors. Also shop seasonal sales. When negotiating a lower price for a product or service, start your request with What discounts are available?"

For additional information, review the FCHS department Financial Wellness webinar.