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A Guide to Financial Wellness in Five Steps

When it comes to improving the quality of your life, focusing on your financial wellness — that is, living within your means, creating safety nets and saving for goals — definitely pays off. Improving your financial health can empower you to achieve other money-related goals. For example, with a good understanding of your income, expenses, savings and debt, you can plan to save for a down payment on a house. Or by creating a safety net for emergencies, you can ensure that an unexpected expense doesn’t lead to a bigger problem.

In addition, prioritizing financial wellness is proven to improve mental health. Multiple studies reveal the connection between financial worries and anxiety, depression, sleep problems and more. Gaining control of your finances goes a long way toward reducing all of those. So how can you get your financial wellness on track?  This five-step guide can help you assess your financial health, and then take action to improve it.

1. Pay down debt

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If you’re dealing with debt, you’re not alone; a majority of Americans have some form of debt. This includes student loans, mortgages, car loans and credit cards. But debt doesn’t have to be alarming, and you can often work low-interest debt such as a home mortgage or federal student loans into a reasonable budget.

However, higher-interest revolving debt may cause additional stress if you’re also facing late payment fees. One of the first steps toward improving your financial health is to create a plan to pay down your high-interest debt. There are multiple strategies for paying off debt, and you’ll want to explore the ones that work best for you. For instance, using a personal loan to consolidate your debt may lower your overall interest rate and simplify your monthly payments.

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2. Budget for short-term goals

Budgets are more than an exercise in tracking your spending; they offer a roadmap for what’s financially possible. The most straightforward approach to personal budgeting is to compare your income to your spending. Start with a solid understanding of where your money goes each month. You may find you’re spending more than you think on daily coffee runs, monthly subscriptions or transportation-related expenses.

Look for ways to save, beginning with painless cuts. These could include negotiating a better rate on your car insurance, brewing your own coffee or canceling subscriptions you don’t use. Then you can earmark your savings for short-term goals like planning a vacation or saving for a destination wedding. 

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3. Plan for bigger expenses 

Everyone’s financial life includes large expenses, such as medical procedures, planned leaves of absence from a job or a home remodel. By preparing for these bigger expenses, you can work them into your financial life rather than having them disrupt it.

As you look into the future, consider what big bills might be coming your way and explore responsible ways to fund your needs and your dreams. A personal loan, for example, might help you complete a much-awaited home remodel. A small side gig can provide extra funds that make it easier for a parent to stay home with children. And a health savings account can accelerate your savings for a planned medical procedure. The key is anticipating the expense and creating a proactive strategy for tackling it.

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4. Create an emergency fund

Part of financial wellness is the ability to handle unexpected financial hits. These include car repairs, sudden home repairs, dental emergencies and injuries. Establishing a variety of financial safety nets ensures that surprise events don’t become financial catastrophes.

Setting up an emergency fund can provide a backstop for smaller emergencies. Exploring various insurance products is also smart — major medical, auto, home and life insurance can all offer protection against unexpected financial events. Establishing a line of credit or access to a personal loan is another smart move, giving you the ability to cover expenses without incurring high-interest debt.  

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5. Save for the future

Once you’ve determined your budget, planned for large expenses and established safety nets, you’re ready to save for your long-term financial goals. This is a last and critical piece of financial wellness; regular savings over years can help prepare for retirement or pay for your children’s higher education.

Take advantage of employer-sponsored retirement savings, and save enough to earn matching funds, if they’re offered. Accounts such as 401(k) plans for retirement and 529 plans for college savings, allow you to save pre-tax dollars, which also helps accelerate your savings.    

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It’s time to get financially well

There’s no better time to start a journey toward financial wellness. Follow these five steps and you may feel more in control of your finances, reduce finance-related stress and anxiety and make real progress toward your goals. 

Is debt consolidation part of your financial wellness plan? Now that you’ve taken these steps, you can evaluate the potential savings of consolidating your higher-interest debt with this debt consolidation calculator