Financial wellness tips to help improve your financial future

The start of a new year can make it easier to define your financial resolutions. Increasing your financial literacy — which incorporate the tools to achieve financial well-being — may help you save money, tackle debt and improve your financial health.

What is financial wellness?

Financial wellness is being in a financially healthy state where you can effectively manage all your finances. It is the overall health of your financial well-being — including your debt, spending and saving. So why is financial wellness important? It’s simple. Security and the freedom of choice. According to Annuity.org, financial wellness has 4 elements:

• Having control over daily and monthly finances
• Being prepared for financial emergencies
• Meeting financial goals — such as savings and retirement
• Having financial freedom of choice for your life

Tips for financial wellness

Track your spending for a three-month period

Keeping tabs on your expenses over an extended period can help make it easier to decide what's working and what's not when it comes to your spending. Consider using an online app — or just a notebook — to figure out how much you spend and on what. Be sure to break it down into categories. Getting a detailed look at your spending habits will help you set more realistic goals down the line. As you look at recurring expenses, it may help you decide which ones can be avoided and turn those expenses into savings.

Manage your debt

Monitoring your debt is a key component in establishing financial wellness. Carrying some debt is normal, but too much debt can overwhelm your budget and impact your credit score. Help manage your debt by paying off credit cards with the highest interest rates first. For additional debt, pay as much as you can on your smallest debts and pay at least the minimum on large ones — even modest accomplishments can be great motivation.

Understand how lending works

Knowing when it makes sense to borrow is important. Whether you're going back to school, taking out home equity, buying a car or remodeling a room, you might need to take out a loan or get a credit card. Learn how your credit score and credit report have an impact on the availability and cost of a loan and determine how to fit loan payments into your budget.

Create a budget — and set goals

After getting a clear picture of how you spend your money each month, try to set a budget. Keep in mind: Each new financial goal will likely have an impact on your existing ones, which means revisiting old goals and reassessing your overall priorities. For instance, major life changes such as the birth of a child, a new job or saving for a new home may require you to adjust your spending goals.

Prepare when buying a home

Learn about ways to save for a down payment and find out how to obtain financing. When you buy a home, it should cost no more than 2 to 2.5 times your household income, and your mortgage should be no more than 80% of the home's value. Having a firm grasp on the details of mortgage loans can help you make the best decision. Consider using a home buying checklist to help you prepare and avoid the risks of mortgage loan denial.

Make automated savings deposits a habit

With all the other distractions in our daily lives, it can be easy to lose track of your intent to save. Try a savings strategy that automatically deposits a portion of your earnings into your retirement and emergency saving accounts so you're not spending time moving money between accounts.

Contributing to a 401k by adding additional pre-tax money to your retirement savings may help lower your annual taxable income. The maximum amount individuals under 50 can contribute in 2024 is $23,000 ($30,500 if you are 50 or older). If possible, talk to your employer's payroll department to increase your contribution amount.

Automating these monthly deposits may be an effective tool for ensuring you make progress toward your financial goals while helping to make saving a habit. Many experts suggest putting at least 10% of your income into savings — and some recommend as much as 20%. Sound too hard? Try starting with 1% of your paycheck and increase as your salary grows.

Create an emergency fund

Setting aside cash for emergencies can help you prepare for unexpected financial setbacks — like a job loss or illness. Without a sufficient emergency fund, you may find yourself with sudden debt. Financial professionals recommend having an emergency savings fund with at least three months' worth of expenses — six to nine is even better. Work within your budget to create an emergency savings plan that makes it easier to bounce back.

Invest regularly

If your savings involve investments, an automated strategy lets you invest on a regular schedule, no matter what the markets are doing. This might help you avoid letting your emotions dictate when to buy and will help keep you in the market during a short-term downturn. It can be hard to make smart investment choices when the market is volatile, but it's important to ride it out. Over time, a schedule of periodic investments allows you to buy more shares when prices are low and fewer shares when prices are high — a concept known as dollar cost averaging.

Spend your healthcare dollars

If your insurance plan includes a flexible spending account, be aware that there is a use-it-or-lose-it rule where you will likely lose any funds remaining once the year ends. Make the most of your benefits by completing all preventative exams and taking care of other medical needs before year's end.

Set up banking alerts

Getting alerts about your checking account usage (including withdrawals) may help remind you of your financial decisions, so you can track how and when you spend your money. In the case of fraudulent or unauthorized charges to your account, it will give you an opportunity to address possible identity theft in a timely manner.

Protect what you own

Get insurance to help you protect your home, car, family and belongings. In the case of covered claims, having insurance may reduce the financial burden that you would otherwise assume in the case of a loss. For example, if you don’t have car insurance, and get into an accident, you may be left with repairs to make, possible medical bills and car loans — all coming from your own pocket. Insurance may help you maintain financial wellness when unexpected events happen.

Save for your kids education

Consider saving for your kids’ college education starting when they are young. Contributing to 529 college savings plans or Coverdell Education Savings Accounts may provide savings to help support your kids when they are ready to go to college.

Seek out a professional

Figuring out your finances takes time. Many people choose to get advice and consult a financial professional to help them meet their goals. Consider working with a professional or doing more research to learn how investment accounts, retirement accounts and compound interest can work for you.