Recipe for Success: 10 Ingredients for Financial Well-Being
Take these steps to create a strategy for lasting financial healthKathy Longo, CFP®, CAP®, CDFA Wednesday, 27 October 2021
When you consider your overall health, you probably take stock of your physical health and mental health. You may even think in terms of spiritual health. However, how often do you factor your financial health into the equation of your overall well-being?
According to a recent article from CNN, seventy-three percent of Americans are stressed about their finances. When it comes to younger generations, including Millennials and Gen Z, that stress level increases above eighty percent.
Financial health is a critical component of your overall health. By taking a proactive approach to your finances, increasing your financial literacy, and committing to some consistent habits, you can achieve financial success. Use the 10 ingredients below to create a recipe for financial success in your life.
1 - Save. Then save some more.
Taking an intentional approach to building up your savings now will pay off (literally and figuratively) in the future. As soon as you start collecting a paycheck, begin stashing a portion of your money away each payday. One way to keep up on your savings without much effort is to participate in your company’s retirement plan, whether that’s a 401(k), 403(b), or IRA plan. If your company doesn’t offer a plan, you should set up your own retirement account and approach it the same way.
Try to take a percentage approach to your regular contributions for your employer-sponsored retirement plan. That way, if you get a raise in the future, your contributions will increase as well without you having to do anything more with your retirement account.
Starting this simple habit will go a long way toward creating a financial security blanket for your retirement.
2 - Spend Wisely
You can’t possibly save every penny that you earn – that’s just not realistic. However, you should be smart about where your money goes. Never purchase something you truly can’t afford and establish a budget to keep your spending in check.
Even those who are financially comfortable can benefit from a budget. If you’re not used to living within a budget, start slow. Set your budget for three months and do your best to adhere to it. Then, take the time to thoughtfully reassess, updating as needed.
Tools exist to help you take this step. Whether you want to create a spreadsheet in Excel or use apps like Mint, Honeydue, or Personal Capital to get started, you can find a way to keep track of your spending that works for you. Check out this list of the Top 7 Best Budget Apps for 2021 to see if any of them fit your needs.
3 - Get Smart About Investments
We often talk about financial literacy, which is simply having an understanding of the various aspects of finance. Investing is one such aspect - and a very important one at that.
Get familiar with the investment world by dedicating some time each week to educating yourself. That could mean a mix of any combination of articles, books, blogs, podcasts, or other financial-related resources. (Our Flourish Insights podcast is a great resource for investment discussions you might find valuable.)
The more you understand about investing, the better prepared you will be to make good decisions surrounding your investments. And if you really want to give yourself an edge, you can always bring in professional advisors to provide additional guidance.
4 - Mix It Up
When looking at your investments, you should ensure that your portfolio is diversified. Yes, we know you’ve heard it before, but diversification is key to risk mitigation when investing. Essentially, you are putting your money in different industries and diversifying by geography, with both domestic and international options.
Which funds make up your portfolio will depend upon factors such as risk tolerance, cash flow, goals, and time horizon. If you have multiple investment accounts, you can diversify each of them in different ways. In the end, if you have your money in several different industries, your savings won’t be severely impacted by any one of those industries crashing.
5 - Make Your Money Work Harder
We all know money doesn’t grow on trees, but it can grow if you put it in the right places! Finding opportunities for compound interest is a great way to make your money work hard and build your wealth.
Rates of return are an important factor to consider when looking at your investment decisions. Because time plays a significant role in the power of compound interest, you should start saving as soon as possible to make the most of this approach. For example, if you make an initial investment with an 8% return, your money would double in nine years. In this scenario, A 35-year-old with $500,000 in the bank could reasonably expect that initial investment to grow to $1 million by the time they are 44.
6 - (E)State Your Wishes
When it comes to financial well-being, estate planning is a critical part of the process. Deciding where you want your assets to go after your passing will help your loved ones avoid adding the stress of figuring out your finances to the emotional stress they are already experiencing.
Did you know only one out of three adults has a will or living trust? Unfortunately, people can pass away at any time. Having an established will - regardless of your health or age - is important. Make sure to share the details of your will with your loved ones as well. It could be an uncomfortable topic, but it could also give you the opportunity to explain your wishes and curtail arguments over your assets once you’re gone.
7 - Educate Your Children
As we mentioned earlier, many Americans feel stressed over finances. The main reason for that is a lack of education around the topic. If you start building a solid financial understanding among your children, it can be a tremendous help for their future. Teach them about budgeting, credit cards, banking, and investing. If they feel comfortable around financial matters and have built up competency around financial skills, they’ll be in a better position for success - and less stress.
8 - Don’t Be Reactionary
The markets are always fluctuating – and for any number of reasons that might not even seem related. Keep an eye on your investments, but don’t make knee-jerk reactions to what happens daily, weekly, or even monthly in the market. Keep yourself focused on the long-term goals of your investments and talk with a financial advisor if you are truly concerned about how your portfolio is performing.
9 - Get Professional Assistance
Even though these steps aren’t difficult, they can feel complicated and even overwhelming. From diversification to estate planning, financial matters are layered and often have a lot of different options from which to choose. That’s where having a professional on your side can come in handy. Find a financial advisor who has your best interests at heart by asking the right questions, such as how they like to work with their clients, are they a fiduciary, how they get paid, and other questions like these suggestions from NerdWallet.
10 - Give Back - When You Can
Once you are comfortable with your financial situation, you may want to consider ways to give back and support causes that are close to your heart. Explore the philanthropic options available to you and invite your children to be a part of the process. Not only will this allow you to do something meaningful as a family, but you will also be teaching your children valuable lessons about charitable giving.
One philanthropic option is creating a donor-advised fund through a third party. These funds are, essentially, charitable giving savings accounts. They come with a great deal of flexibility and tax benefits for you as the donor, too.
Create Your Recipe for Success
There is no secret ingredient to financial well-being. The 10 ingredients above can serve as a valuable foundation to get started, but the perfect mix is a little different for each individual. The true keys to success are consistency and focus, building healthy money habits while paying careful attention to all aspects of your finances.
If you’d like assistance in creating a strategy to maintain your financial well-being, contact us today. At Flourish Wealth Management, we combine your aspirations with our expertise to empower you to meet your financial and life goals.
About the Author
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.