Financial stress is typical around the beginning of the year especially after the yuletide with somewhat unrestrained spending. Many of us have found ourselves in this situation and therefore can relate to the circumstances. With the proper financial discipline and attitude, however, this cyclical financial blot can be overcome, and we can move towards financial wellness. The first thing, when it comes to the journey to financial wellness, is appreciating your current context. The assessment of your context will help you define the steps you have to put in place to get you to where you want to go. In this article, I will share nine (9) pillars that will help you achieve financial wellness in the long term.
Have a financial plan
Having a plan is indispensable if you want to achieve financial wellness. In building, for example, you just don’t move to the site with your tools and start digging. You first need to have an idea or a blueprint of the kind of structure you want to put on the land. How do you want the structure to look like? Is it a storey building? Is it a two-bedroom house? All these things will inform your decision as to what amount of money and time you will spend on the building. In the same way, you need to draw a plan for your financial wellness journey.
Just like you need an expert to put your beautiful dream house on paper as the blueprint, you need an investment adviser to assist draw your financial plan. In Ghana, there are many institutions that do this at no cost. Your financial plan should state clearly what your financial wellness objective is and a budget that will make that objective materialize.
A key part of your strategy is to know what you spend your money on and who you are paying out of your income. Whether you have a stable flow of income or not, a budget is necessary to help you make room for savings. You simply cannot wish you could save more until you actually take action to save. You could do this as a family unit or as an individual which ever works for you is fine. It is also important that you make room for miscellaneous and other family bonding activities. This year stop wondering where your money went and start giving it a purpose using a budget.
Let your money work for you through savings and investments
Once you put together your budget and make room for savings, don’t just leave it there, invest it. Saving money is good but when you leave it at that, the money does not grow. Put your money to work by investing it because if you don’t find a way to make money work for you, you end up working for money until you die.
Plan for your retirement
You don’t have to wait for retirement to plan for it. How your retirement will look like will depend on how you plan for it. When you retire, your incomes also retire but your expenses do not and that is the critical reason why you have to plan for your retirement. It is important that before you retire, you ask yourself some critical questions in order for an effective retirement plan. You need to ask yourself how you want to live after you retire and also assess the kinds of expenses you envisage to make in your retirement such as medical bills, utilities, school fees, etc. Decide how much to invest and where to invest in order to generate enough for your expenses post retirement.
Have an extra income stream
You need to find a way to make extra income if your current income barely allows you to save. Your eight to five job may just not cut it. If your budget is not allowing you to make room for savings and investment, find something else that will add on to what you are doing. A good place to start is a talent or a skill that brings you fulfilment. Start something you are passionate about, develop the skill and with time people will pay for the service.
Maintain accountability partners
Another thing that has helped me is having accountability partners. The journey to financial wellness is a long one and it gets tiring along the way and you might lose focus. That is why you need someone that will cheer you on to keep your eyes focused on the goal. I have a friend that is unrelenting when it comes to my goals. I show her my goals at the beginning of the year. And every quarter she calls me to walk me through them to ensure that I am on track. Your coach, wife, partner, husband, or friends can be your accountability partners.
Start paying off debts
This is a very critical issue that must be taken seriously. Paying off your debt is very important if you have to achieve financial wellness. There are two ways this can be done – the snowball method or the avalanche method. The avalanche method is where you list your debts, and you pay off the ones that have the high interests first. The snowball method is when you list your debts and pay off the smaller ones first. No matter which one you choose, there is one key principle that you need to implement when you want to be well financially; look at your loans and try and settle them. You need to pay off your debt however don’t be in a hurry to pay all of them and be left broke.
Avoid quick cash schemes
If you want to achieve financial wellness, you must avoid quick cash schemes, which are schemes that promise quick and huge returns on your investments. When you want to invest your money, time is important. Being consistent and patient is important because investments grow over time. So, when you are promised about 10% above the risk-free rate, you need to question a bit more what they are using the money for and where they are placing the funds. If it sounds too good to be true, it is really too good to be true. Your money is your treasure so make sure you are putting it in an investment that you understand.
Create an emergency fund
Finally, you need to create an emergency fund. This is not the fund you draw from any time you are called for a funeral. The emergency fund is a fund built over a period to handle unforeseen or unplanned occurrences such as redundancy or a big hit to a major source of income. So, if you are in a formal work environment and you are earning a salary, my advice is to build a fund or a portfolio that has a minimum amount of your six months’ salary. This should sustain you until your next move on how to pick yourself up again.
The journey to financial wellness is undoubtedly long and can be tedious sometimes but with the right attitude and adoption of some of the strategies discussed here, it can be achieved.
Speak to an investment adviser and kick start your financial wellness journey.
By Miriam Maku Amissah
The writer is the Head of Sales at Stanbic Investment Management Services (SIMS)