Beginner Plan for Financial Wellness

Step 1 – Understand your finances – create a budget

Your first step is to understand your finances and create a budget. How much are you spending on rent or your mortgage? How much are you spending on your car payments? What are monthly necessities?

We start there. Once you’ve documented your necessities, find out how much you spend on non-essentials. What are your streaming subscription costs? How much do you spend on eating out? What’s your overall entertainment budget?

Now how much are you making after taxes? (Don’t worry, we’ll work on taxes soon enough).

These three elements are essential to start.

If you need help with creating a budget, you can use this simple budget template here.

Go to the next step

Step 2 – Evaluate

You must evaluate your spending. Now that you have identified your costs, see what needs to be changed. Is your car payment essential? Is that specific car you are driving essential? What spending can be curbed? This is an essential part. If you can find an average amount of money to save, you can reinvest this money elsewhere, and save more than just what spending you’ve eliminated/reduced.

Here are some tips:

• Eliminate one or more TV subscription services
• Curb spending on luxury clothes
• Reduce spending on eating out
• Reduce spending on entertainment activities: movies, concerts, etc.

You don’t have to do this all at once. Start small for a lifestyle change. Eat out 3-5 times a week? Change that to 1-2 times. If you have Netflix, Hulu, Disney+, Paramount+, and a TV cable subscription, find 1 or 2 favorite subscriptions, and eliminate the others that you rarely use. Before you know it, you’ve saved $200 (or more) a month! Let’s turn that into a yearly savings of $2400. Remember this number for the next step!

This is also a good time to evaluate your preparedness for emergencies. If there were a health problem with you or your family, are you prepared? If you lose your job, how long can you go without your paycheck?

Step 3a – Pay off some debts

This step is difficult because you won’t see any immediate returns. However, bad consumer debt such as credit cards and car loans can be costly. Continuing to make purchases on your credit card means you are likely paying a premium for every purchase you make! You’ll have to evaluate your debt to see what is important. If you have no debt (outside of a mortgage) skip to the next step!
If you do have debt, evaluate how long until this debt is paid off. If you have a credit card bill that can be paid off quickly, do it first! Let’s say you have $2000 in credit card debt, and you were paying $25/month already. That can be paid off in 9-10 months (assuming you’ve saved $200) even with interest. You’ve now saved $225/month in less than a year! We can still do more to turn that number into a larger number.

Step 3b – Reinvest!

We’re not talking about stocks yet. That can come later, and there is a lot to understand, especially regarding fees and tax implications. For now, we’re going to talk about retirement.

We all know saving for retirement is vital, and many will roll their eyes at this step. But let’s talk about why it can help you today, and not just when you retire decades from now! Your 401k contributions are tax deductible*! This means you save for your future, and you decrease your tax bill for next year. Every dollar you put into your retirement account (assuming 401k) is deducted from your income for that year. This means you’re saving by curbing your spending today, and you’ll save for your retirement, all while saving on taxes for next year!

This is a great time to evaluate your health coverage. Did you know that HSA contributions are also tax deductible? If you’re able to increase spending in HSA (from previous savings) you can be prepared for medical bills, and save money in taxes next year.

*Don’t have a 401k at your job? Ask your manager/HR rep. If your company doesn’t offer 401k you can set up a free IRA Roth with companies such as Fidelity, Charles Schwab, or J.P. Morgan. Ask your local bank as well for Roth IRA options.

Step 4 – Repeat, add value

Once you’ve completed all the steps, you should consider taking it up a notch. DON’T BACKTRACK. If you’ve saved $250 on frivolous spending and credit cards, it does not mean it’s time to get a new car. Instead, think about how you can pay off all your debt (student loans, cars, other credit cards, etc.) and have this effect snowball on you. Add more money to your 401K until you’re maxed out. Maybe it’s time to start thinking about stocks, ETFs, mutual funds, etc (be sure to get educated on tax implications first). This may seem obvious, but often when people get out of small bad debt like a credit card, they see room in their budget to upgrade. Maybe that $20k car turns into a $35k car, and your car payment doubles! Then you’ve wasted your progress and need to start over.

Start thinking big: How can I save even more? Is my tax bill still too high?

Consider these tips:

• Use your savings to pay off larger debts
• Max 401k/Roth (once you can afford to)
• AVOID – using freed finances to upgrade unnecessarily – do you really need that new car or iPhone?
• Learn more tax tips
• Start to get education on stocks/ETFs/mutual funds
• Be aware of get-rich-quick schemes!
• Be aware of trendy stocks and tips!

**Please be sure to do your research, talk with your employers about all your options, and discuss changes with your family before making major financial decisions.