For many Americans, being financially well is both a state of mind and a state of wallet. A stable financial life — one where you are able to pay your bills, save for the future, protect what's important, and have money left over at the end of the month — goes a long way toward creating that mind/wallet balance we seek.
But sometimes, outside forces make that balance hard to maintain. Inflation, high interest rates, a sluggish economy, and perhaps a slew of new debt are all headwinds that can cause us to lose focus on improving our financial wellness.
When times become trying, as they currently are, doing just a few simple things can keep us moving in the right direction. Here are three things you can do right away to help get your financial well-being plan on track.
Contribute 1 percent more to your 401(k)
There is a good chance that you haven't changed your 401(k) contribution since you set it years ago. So, let's start there.
According to Vanguard, the median employee contribution to their defined contribution plan is just over 6 percent. Increasing your contribution an additional 1 percent can potentially mean tens of thousands of dollars more in your retirement account when you are ready to retire. For a person who makes $100,000 per year, the difference between a 6 percent and 7 percent contribution rate after 30 years (assuming an annual growth rate of 5 percent) would be about $70,000.
Many financial professionals suggest contributing from 10 to 20 percent of your salary each year to your retirement fund. By increasing your contribution by 1 percent this year, you can begin the process of building up to that goal. So go ahead and increase your 401(k) contribution by an additional 1 percent this year (it won't hurt as much as you might think) and plan to do so again next year.
Save an extra $50 this month
Saving is a habit. The more you save, the better you get at it. And like most things in life, you need to stretch yourself every now and then to get even better at it. This month, try saving $50 more than you usually do (or more if you can, less if you can't). It may not sound like a lot, but it does a couple of things.
- First, it provides a stretch goal that you can work toward meeting. If you can save an additional $50 a month it can help build your financial confidence even more.
- Second, you begin to "pad" your savings. This is particularly important when an unexpected expense strikes, like a car repair. It could be that little extra you need in the end to keep you whole.
Saving an extra $50 this month can help increase your financial confidence, pad your savings now, and, just as important, build momentum. If you can save an extra $50 this month, what can you do next month?
Pay off your smallest debt as soon as possible
Debt is insidious. All too often, a small debt can quietly become a large debt if not addressed in a timely manner. And when that happens, your best-laid financial plans can become derailed.
So, inventory your current debt and find the smallest one you have. It could be the couple of hundred dollars you put on the department store credit card you just opened. Or maybe it's that small debt you've had for months that just never gets any smaller (even though you pay something every month).
Find that one small debt you know you can tackle in the next few months and get it eliminated. We know that budgets may be tight right now, but once you calculate how much you need to pay each month to get rid of that debt, look for unnecessary expenses you can remove from your budget. Use those monies to pay off this debt. This way, you get twice the bang for your buck: You eliminate debt (and its associated interest) and get rid of expenses you don't need. (Related: Handling credit card debt)
Achieving financial wellness is a lifelong journey. Starting off with a few small but meaningful adjustments can go a long way to giving your financial well-being plan the shot in the arm it could use.
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