Your Path to Financial Wellness: An 8-Step Guide

Raise your hand if you've ever felt overwhelmed or intimidated by the thought of working on your budget or examining your debt situation. You're in good company. According to a recent survey by Capital One and the Decision Lab, over three-quarters (77%) of Americans feel anxious about their money situation. And per a MarketWatch survey, 65% report finances are the biggest sources of their stress.

We probably know the basics of what we're supposed to do with our money. But what gets in the way of being proactive and taking the steps to make improvements? For one, you might not know where to start. And just like the longer you wait to tend to your list of household chores, the harder it feels to get around to them, so it goes with your financial housekeeping.

In honor of Financial Literacy Month, we present to you another way to get organized with your money situation. Here are the Financial Health Network's eight indicators to help you create an action plan.

1. Spend less than you earn

First, you'll want to make sure that you're spending less than what you're making.

Telltale signs:

• You put everyday essentials on to your credit card and do not pay it off in full
• You run out of funds before the next paycheck rolls around

Why it's important: If your expenses are higher than your income, it'll be tough for you to build savings. And without a stockpile stashed away, it'll be hard to endure any hard blows that come with unexpected events – think a medical emergency, major car repair, or job loss.

Plus, you'll have a harder time to pay off debt. In fact, when you're overspending, you're prone to digging a larger debt hole.

How to get started: Look at your spending to see exactly where your money is going, and see what areas you might be spending too much. Likely, you'll discover some surprises. Start by cutting back on areas where you're overspending. For example, cut back on eating out. Or, you could cut back on expenses that fall within the "neutral" or "negative" camp. In other words, expenses that can bring out negative or neutral feelings, versus types of expenses that make you feel joy.

For instance, if you're neutral about your car insurance payment, reach out to your company. See if you can trim down the premium. It's also good measure to take a close look at your big expenses. At the very least, aim to assess every year. That way, you're not missing out on any opportunities to lower them.

2. Pay bills on time and in full

Telltale signs:

• You fall behind on bills
• You ask friends and family to borrow money
• You seek expensive forms of debt (i.e., payday loans)
• You take money that was supposed to go from one bill to another

Why it's important: When you don't have enough to cover your bills and pay on time, it could cause an avalanche of financial hardship. If it's a major bill, like housing or your car, you could risk getting evicted or getting your car repossessed.

For any loan payment that gets reported to the credit bureaus, think about mortgages, auto loans, credit cards, and other forms of financing – late payments can hurt your credit score. Once a payment is 30 days late, it can end up on your credit report.

How to get started: Make it a priority to be on time and to pay the bills in full so that you have a roof over your head and a way to get to work.

If you're running into trouble with staying current with your bills, work on making adjustments to your budget. You can also call the company to see if they will work with you to lower your monthly bill or temporarily pause payments.

3. Have enough in a short-term emergency fund

Ideally, you'll want to have at least six months' worth of rainy-day funds on hand. However, this depends on your situation, and in some cases, you'll want to have a more substantial emergency fund.

Telltale signs:

• You simply don't have a savings account for emergencies
• You have an established fund but need to tap into it for non-emergencies

Why it's important: Without an emergency fund, you'll likely need to resort to expensive forms of financing if you're in a bind. Also, you might find yourself in greater debt. For example, putting unexpected purchases on your credit card because you need to.

How to get started: To build your emergency fund, start small. Don't feel pressured to stash away $5,000 overnight. For example, set up an emergency savings account, and aim to set $5 a week. It might not seem like a lot, but you'll have accumulated $260 after a year. Ramp that amount to $10 a week, and you have $520.

4. Have sufficient long-term savings

Telltale signs:

• Thinking about your investments and retirement makes you nervous or avoidant
• You don't have a 401(k) or an IRA set up

Why it's important: A retirement fund helps you ensure that your future needs are met and that you can achieve financial security.

How to get started: If your workplace offers a 401(k) retirement savings account, consider tucking away part of your paycheck. Most employer plans offer automatic contributions, so you can have a portion of your income go straight toward your retirement savings. You can start small and increase the amount over time. If your employer offers matching contributions, see if you can put enough away to receive the entire match.

If your employer doesn't offer a retirement account, consider stashing funds into an IRA. There are tax perks to contributing to an IRA. Depending on whether you choose a Roth IRA or a Traditional IRA, you could receive tax savings now (Traditional IRA), or when you start making withdrawals (Roth).

5. Have a sustainable debt load

Telltale signs:

• You feel stressed, anxious, or fatigued about your debt load
• You have trouble keeping up with your debt repayments

Why it's important: When you have a manageable debt load, you won't find your funds getting eaten up by interest and late fees. Plus, it could lead to resorting to expensive debt – or needing to file for bankruptcy.

How to get started: Take a close look at your debt situation. First, you'll want to tally your debts, such as credit cards, student loans, and car loans. Then, look at the Annual Percentage Rate (APR) or interest, the lender, and the amount.

From there, determine what you can do to make your debt loan more sustainable. For example, would moving your credit card due dates be helpful? If you move them to due dates that fall in line with when you get paid, you might have an easier time keeping up with payments.

Or, to get on top of things, you could make two monthly payments toward your credit cards. You could also contact the lender or card issuer to see if they are open to working with you on lowering your interest rate.

6. Have a prime credit score

Telltale signs:

• You have a credit score that's less than 660

Why it's important: A strong credit score means an easier time getting approval for loans, credit cards, and mortgages. You'll likely have lower interest rates, which can help you save money on financing.

The higher the score, the better. A good to exceptional credit score, which is usually a FICO® credit score of 670 and above, can help land more favorable rates and terms on that loan or line of credit. However, the specifics can vary slightly depending on the lender and the different credit scoring models that are available.

How to get started: First, you'll want to take stock of where you stand credit-wise. Order a free credit report from AnnualCreditReport.com. You'll also want to check your credit score. Some credit card issuers, monitoring services, and budgeting apps offer monthly credit score updates.

If you're trying to elevate or establish credit, consider asking someone you trust who has an established, positive credit history to be added as an authorized user to their card. They don't necessarily have to offer you credit-card use privileges, but being linked to someone with a positive payment history, low credit utilization and strong credit might lift your credit situation.

7. Have appropriate and sufficient insurance

Telltale signs:

• You're nervous about the unexpected or a natural disaster and about not having enough insurance to cover emergency expenses

Why it's important: You'll want to protect your assets—your home, car, and other valuables—should an emergency arise. This can help buffer your finances against potential shocks. Without the right type and adequate insurance, you might need to tap into your savings to cover costs that an adequate insurance policy can help cover.

How to get started: Go through your different policies and see if you have adequate insurance.

This can include:

• Health insurance
• Auto insurance
• Homeowners or renter's insurance
• Disability insurance
• Life insurance
• Long-term care insurance

If you don't, see what you can do to adjust the coverage amounts, and how that might impact your expenses. Trying to save on costs? Your employer might have group plan rates for policies such as disability insurance or long-term care, which means potentially discounted rates.

8. Plan ahead for expenses

Telltale signs:

• You feel that money "comes and goes"
• You don't have a budget
• Money management feels confusing or overwhelming

Why it's important: Without a clear game plan, you won't be able to anticipate future needs, such as emergency expenses and short—and long-term goals.

How to get started:
If you don't have a budget, create one. List every expense—don't leave a stone unturned. You can jot everything down on paper, use a spreadsheet, or check out a free or low-cost budgeting app. This can Include one-off expenses, seasonal purchases, and annual purchases.

From there, you can track roughly your spending for different types of expenses. For example, housing, bills, gas for your car, monthly insurance premiums, debt payments, groceries, eating out, entertainment, and household and personal items. This is where a budgeting app can come in handy. Spot areas where you feel like you're siphoning money. You may – or may not – be surprised.

Other steps to take to plan ahead? Jot down all your short- and long-term expenses and consider setting up savings accounts for goals. Automating savings is your friend. You can stash away a small amount each week.

Final thoughts

Instead of trying to tackle all eight areas at once, start with the one area that can help your money situation the most. From there, you can work your way through all eight indicators. Over time, you'll be well on your way to financial wellness.

About the author

A personal finance writer for over 8 years, Jackie Lam covers money management, lending, insurance, investing, and banking, and personal stories. An AFC® accredited financial coach, she is passionate about helping freelance creatives design money systems on irregular income, gain greater awareness of their money narratives, and overcome mental and emotional blocks.

Her work has appeared in publications such as Bankrate, Time's NextAdvisor, CNET, Forbes, Salon.com, and BuzzFeed. She is the 2022 recipient of Money Management International's Financial Literacy and Education in Communities (FLEC) Award, and a two-time Plutus Awards nominee for Best Freelancer in Personal Finance Media. She lives in Los Angeles where she spends her free time swimming, drumming, and daydreaming about stickers.

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