With the inflation rate higher than it’s been in 40 years, many people are feeling like their quality of life is declining, and 38% are feeling financially unhealthy. Many factors contribute to this feeling, including wage growth, gas and housing prices, news about the economy and more. And while the U.S. economy is cyclical by nature and heavily influenced by external factors like global conflicts and pandemics, it’s important to adopt habits that can help you build financial security. So you can weather the ups and downs that are bound to come while still meeting your financial goals.
1. Have a budget and stick to it
It’s hard to achieve a goal without a plan. A budget is a monthly and yearly “plan” for how you will spend and save your income. To develop a budget, you must take your total take-home (i.e. “after tax”) income for each month, and subtract from it your expenses. Some of these expenses, like rent or your mortgage will be “fixed”, which means they’re always the same and you can’t change them without making a big life change. These are the expenses you enter but leave alone (unless you have to).
Other expenses like food, entertainment, and even, perhaps childcare, are “adjustable”. These are expenses that tend to fluctuate and that you can affect by making relatively small changes to your habits. The first draft of your budget should just be entering what you spend on a monthly basis, making sure to label your expenses as either fixed or adjustable.
Once that draft is done, take a look. Are you in a good position to meet your financial goals? If not, play around with the numbers until you have a plan (i.e. budget) that’s doable for you but also puts you on the path to financial security.
2. Be mindful of future goals with major purchases
Major purchases should be planned for and fit into your big picture goals. An example of this is buying a car. Cars are expensive and usually require a downpayment that could take cash away from a longer-term financial goal like buying a house. Cars are also depreciating assets, which means that the longer you own them, the less they’re worth.
So, if you want to make a major purchase of something like a car, run the numbers. Ask yourself, “How does the car payment fit into my monthly budget?” “If I give x as a downpayment, how far does it set me back in terms of reaching my longer term financial goal?” “Is this a smart purchase to make at this time or can it wait until I’ve reached that other financial goal?”
3. Surround themselves with financially secure people
Anyone who’s ever signed up for a group exercise class knows two things are true: 1. It’s easier to hold yourself accountable when you have others who are doing the same. 2. If you don’t hold yourself accountable, one of the group members is probably going to say something.
That’s because humans are social creatures that want to belong, so we tend to take on the habits of those around us. Groups also tend to police the behavior of their members. So while we might make different decisions when we’re alone, if we surround ourselves with people whose habits we want to emulate, we’re more likely to be successful than if we’re surrounded by people whose habits are less desirable.
4. Make savings a priority
When developing your budget, you should “pay yourself first”. That means, the first line item under your expenses should be how much you want to save. Then every paycheck, take your chosen amount out of your checking account and put it in either a savings, retirement or investment account.
Many employers allow you to split up your direct deposit into at least two accounts. If your employer offers this service, you can choose how much you want to save from each paycheck, then every time you’re paid, your employer will automatically deposit your money into your preferred accounts. This can make it easier to save.
5. Eliminating debt is a focus
Since most debt carries interest, which makes whatever you purchased with your debt more expensive, it’s usually a good idea to focus on getting rid of as much of your debt as you can as quickly as possible. It’s also usually a good idea to avoid taking on new debt. However, not all debt is created equal.
For instance, taking on debt like a mortgage that allows you to build equity, is generally considered a “good” kind of debt (provided the monthly payment works with your budget). But purchasing something on a credit card that carries 22% interest should be avoided unless you can pay off the expense before the interest gets assessed.
6. Work with professional advisors
A financial planner can help you strategize and plan how to reach your financial goals. They can help guide you in how and when to invest your money, they can help you with your budget and can also serve as someone who holds you accountable for maintaining your healthy financial habits.
7. Learn from past financial mistakes
Everyone has made at least one poor financial choice at some point in their life. But you don’t have to keep making those poor decisions. If you make a mistake, take an honest look at your actions and their consequences and then build a system around you that can help prevent you from doing the same thing again.
8. Avoid comparing themselves to others
Everyone’s goals are different. So before you get on social media and start envying the house, the vacation, the car, remember that everyone is starting at a different place, has different tools to work with and is headed on their own path. Maybe you’re still paying off your college loans and that person didn’t have to take on debt to get an education. Conversely, maybe they took on massive debt in order to pay for that thing you’re envying, and you know that taking on that debt would prevent you from meeting your goals.
This is where working with a professional comes in handy. They can help keep you focused on your path and reaching your goals, reminding you to stay the course so you can reach what financial security means to you.
9. Live modestly
Financially secure people live within their means. When considering different options, they usually veer away from the most expensive (even if they can afford it). They buy what they need and some of what they want, but it all fits within their budget and doesn’t prevent them from reaching their long term financial goals.
10. Invest in the future
Financial security means not being fearful of what the future holds. As we said above, the economy is cyclical, the market rises and dips and the U.S. sees periodic episodes of high inflation. In order to weather the ups and downs, financially secure people always keep an eye toward the future.
They buy investments that will appreciate in value to help insulate them from inflation, they contribute to an HSA (and invest those savings) so they will have a tax-free way to pay for medical expenses, they contribute to tax-advantaged accounts like 401ks and IRAs and they plan for future financial events like the birth of a child, a child going off to college, retirement, etc. If you plan for what’s to come, you’ll be in a more financially secure position when it does.
Getting started with Lively
Investing in an HSA gives you a tax-advantaged way to pay for medical expenses now and in retirement. You can invest your savings so that they grow at the rate of the market and once you turn 65, you can use your money any way you want to. An HSA is part of a well-balanced financial plan and Lively can get you started today!
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.