January is a great time to plan and update your financial strategy.
It’s a great time to connect with your advisor to discuss your financial situation and aspirations for their future. It’s also a good time to connect to see if your financial strategy needs any adjustments or changes based on your lifestyle.
Defining Financial Wellness
The first thing to do is define what “financial wellness” means for you. This might drastically vary from person to person. It is informed by who you are, where you are coming from and what your experiences with money are. A person who has had serious financial troubles in their life might have different expectations from a person who has enjoyed relative financial stability.1,2
How, then, to define this? First, ask yourself what you need to feel secure, financially speaking. Here are the questions to consider:
- How much should you have saved?
- How much income should you be bringing in each month?
- Where are you at with your debt?
- Would things be simpler if you carried less debt?
- How fluid is your cash flow when it comes to expenses that are not urgent (taking your family out to dinner or on a small trip) versus larger financial goals (such as buying a new kitchen appliance)?
- Finally, and perhaps most importantly, will you be able to retire at your target age?
Financial Wellness Goals
Thinking about financial wellness is often a matter of setting goals for what you can accomplish now and what you can work on to make it a part of your larger financial strategy. For now, consider taking these actions:3
- Have a values-based conversation with the decision-makers in your household, meaning any tax-paying adult who contributes income and shares responsibility for the bills. This could be your spouse or a family member. Make sure that the non-essential things you are spending money on lining up with your commitments to meet your financial needs. This is not a “stop getting lattes” conversation; it is a “are we spending money on the things that matter?” conversation.
- Consider automating payments, especially towards regular items, including student loans, credit cards and other instalment payments.
- Creating an emergency fund reflecting 3–6 months of household expenses will afford you a stable foundation going forward. If that seems too ambitious, build the fund a month at a time until you reach your goal.
- Make regular contributions to your retirement accounts. Take advantage of any matching contributions you might get from your employer.
- Make long-term financial goals. If you are thinking in terms of buying a house, for instance, let that guide your overall financial strategy.
- Is becoming totally debt-free an achievable goal? It can be, if you make it a priority. That said, being totally debt-free may be a difficult task for most households. For that reason, it may be better for you to focus on your other goals first and make debt freedom a target for a later date: for example, being debt-free by retirement.
These are, of course, not hard and fast rules. As mentioned above, every individual has their own specific definition of financial wellness. Some of these examples might feel like a long reach. Others, you might already be practicing. The good news is that with careful practice and judicious scrutiny, many people can gain a feeling of satisfaction and even pleasure from maintaining financial wellness.
Having your financial strategy in place not only can mean a great deal to you in the long term but also may provide you some comfort in the short term. Schedule a time to discuss this with your trusted financial professional today.
T. Scott Sather, CFP, CIMPortfolio Manager & Financial Planner