- Financial stress can negatively affect your productivity at work.
- Financial wellness is finding a balance between living for today and preparing for tomorrow.
- Saving for emergencies and for retirement provides short-term and long-term financial cushions.
“I’m stressed out about my finances. Sometimes I worry it might start affecting my focus in the classroom. I really need to feel more in control of my money and financial future.”
More than one-half of Americans say that thinking about their personal finances makes them anxious, and 46% have not set aside money to cover expenses for three months, according to the FINRA Investor Education Foundation.1 Whether it’s falling short of retirement savings goals or having trouble paying the bills, many people are financially out of balance. Ring a bell?
Enter the concept of financial wellness. Financial wellness is simply finding a balance between living for today while preparing and planning for tomorrow. It doesn’t have to mean becoming wealthy, although there’s nothing wrong with having that goal. It’s more about finding a sense of control over your finances and confidence in your financial decisions. It’s not such a stretch to see that reducing financial stress can increase your productivity at work and your enjoyment of life in general.
Here are eight financial action steps that can help get you on the road to financial wellness.
1. Protect what you have with insurance
Insurance acts as a huge safety net that protects everything you’ve worked hard for throughout your career. Considering the stakes, it’s smart to sit down with a professional who can help you match your individual situation with available plans.
“Life, disability and long-term care are vital components of a comprehensive financial strategy,” says financial planner Nick Ventura, president/CEO at Ewing, N.J.-based Ventura Wealth Management. “Having these elements in place will offset the risks of catastrophic events.”
NEA Member Benefits offers a range of life insurance options to help cover yourself and your family.
For example, NEA Complimentary Life Insurance provides eligible members with up to $1,000 of term life insurance, up to $5,000 of AD&D (accidental death and dismemberment) coverage, $50,000 of AD&D for covered accidents on the job and $150,000 of life insurance for unlawful homicide on the job. All you need to do is name your beneficiaries on your policy. Eligible new members also receive $15,000 of no-cost NEA Introductory Term Life Insurance for their first 12 months.
Beyond this free coverage, you and your spouse can supplement your life insurance at member-only rates on a wide range of plans, including NEA Group Term Life Insurance, NEA Level Premium Term Life Insurance and NEA Guaranteed Issue Life Insurance.
2. Plan for life after you’re gone
Most people don’t want to contemplate their own mortality, but putting off estate planning is ill-advised. It’s difficult enough to lose a loved one, so when he or she leaves behind a tangled financial mess, coping becomes more complicated.
In addition to arranging for an authenticated will, trust and other estate-planning options, you should designate beneficiaries for all of your retirement accounts. List each one by name (as opposed to “my spouse” or “my children”), with a Social Security number and a percentage allocation of what each beneficiary should receive, says Thomas J. Granger, assistant vice president/sales director of qualified plans for Security Benefit, which provides the NEA Retirement Program.
“You need to update this after every life event that would change circumstances, too,” Granger says. “This includes a marriage (or divorce) and the birth of a child. Judging from what we see here among our clients, I’d say that no less than 15 percent of our accounts either don’t have beneficiaries listed or aren’t properly updated. This results in court case after court case in which the intent of the deceased is contested.”
3. Be smart in paying off your home mortgage
It’s admirable to build as much equity into your house as possible, but don’t take this to extremes. Just like stocks, a home is an investment. It gains (or loses) value each year, based on its estimated sales value at any given time. True, median sales prices of existing homes rose 4.9% in 2019, according to the National Association of REALTORS. The sales prices averaged 5.15% in annual gains from 2016 through 2019. But the S&P 500 delivered nearly 29% in returns last year—the highest since 2013. In fact, the S&P averaged nearly 13% in annual gains from 2016 through 2019. (The S&P is down significantly so far this year, mostly due to the Coronavirus pandemic.)
What does that mean? Well, if you allocated your extra funds toward paying off your mortgage on an accelerated payment schedule for all of those years—as opposed to building up retirement-intended stock funds—then you missed out on some potentially big stock market earnings.
“While it can make homeowners feel better, paying off your mortgage early instead of investing for the long term can be a wrong move, especially with interest rates as low as they are,” says Paul Jacobs, a financial planner with Scarsdale, N.Y.-based Palisades Hudson Financial Group. “By borrowing at low rates and generating higher returns with your investments, you can make a nice profit.”
4. Check your credit report regularly
A high credit score can save you tens of thousands of dollars on loans due to lower interest rates. Your credit reports from the three big credit bureaus—Experian, TransUnion and Equifax—determine your credit score so it pays to make sure your credit reports are accurate.
You’ll want to review them regularly to find any errors that could negatively affect your score.
“You should check your credit report at least every year,” says J. Douglas Wellington, an associate professor with the School of Business and Management at Bangor, Maine-based Husson University.
“You are entitled to a free credit report every 12 months,” he says. “Use a website such as annualcreditreport.com to check all three major credit bureaus. Also, some credit card companies are now displaying your credit score on your statement to allow you to monitor your score monthly.”
5. Pay your credit card bill on time every month and keep your balances low
On-time credit payments are one of the largest components of your credit score. Condition yourself to be diligent about making timely payments and keeping your credit card balances low.
Even better, pay off your cards on the months you're able to—down to the very last penny. If you can pay them off each month, you can avoid paying the interest that kicks in when you roll over a balance. Plus, paying in full every month may also help you resist the temptation to spend beyond your means.
6. Build an emergency fund
Building up an emergency fund is absolutely critical. Unexpected expenses crop up for everyone at some point. You don’t want a major household expense or a job layoff to force you to reach for the credit cards. An emergency cash fund can help you weather these events.
Recommendations on how much to save vary depending on individual situations. But the general rule of thumb is to keep three to six months’ worth of living expenses in a no-risk savings account. Six to nine months would be even better.
7. Get an early start on retirement saving
A report from the National Institute on Retirement Security found that about 66% of people of working Millennials have not made any retirement savings contributions. The reasons are varied. Many Millennials have student loan debt, and this group entered the workforce during a time of depressed wages, high unemployment and major changes in the American economy, according to the report’s authors.2
But putting off long-term retirement saving could cost you.
Let’s say 22-year-old Rita starts saving $2,000 of her annual pre-tax income in a 403(b) plan. Her college friend Ramesh doesn’t start saving $2,000 a year until age 27. Over 40 years (assuming a 6% return compounded annually without withdrawals), Rita ends up with just over $309,500 while Ramesh will have about $223,000, according to a retirement calculator from Edward Jones, an investment company.
If Rita doubled her contributions to $4,000 a year, her account could grow to an estimated $619,000 while Ramesh’s account would end up at about $445,700 with an age 27 start.
“You should sign up for your employer’s savings plan before you get your first paycheck,” Granger recommends.
“It’s common for employees to change their minds if they do so after getting that first check,” he says. “They see that they’re taking less home, and they think they’re losing money, even though the very opposite is true. When you take out your contribution before you see your first paycheck, there is no ‘adjustment shock’ to discourage you.”
Another essential step: Designate your contributions as a percentage of your income, not as a flat dollar figure.
“Teachers in particular need to know this,” Granger says. “403(b) plans typically take flat-dollar contributions, such as $50 or $100 every month. The danger is that you won’t make adjustments as your income rises. That’s why setting aside a percentage of overall income will usually result in higher savings over time.”
Granger recommends that educators increase their contributions each year to match any increases in their salary.
Of course, if you’re not a Millennial with a 40-year investment time horizon, don’t despair. The best time to start saving for retirement is today, regardless of your age. Every dollar saved can make a difference in your retirement security.
8. Keep your hands off your retirement account until retirement
Think of your retirement account as the ultimate “in case of emergency, break glass” asset. But you really never, ever want to break the glass!
“People often do this to buy depreciating assets, like a car,” Ventura says. “But it’s a bad idea. The immediate gratification of such a purchase isn’t worth putting your long-term goal of retirement at risk. Remember: You will not be able to borrow to pay for retirement.”
Financial wellness feels good
Make a commitment to incorporate these actions into your financial plan. You’ll lower your financial stress and start feeling better about your future security.