4 Steps to Achieving Financial Health

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

By Michelle Brownstein

Financial health can be difficult to attain -- especially when the bar is set high. Most people think they won’t achieve financial health until they have over half a million dollars in the bank.

This comes from a new survey report by Personal Capital and Empower Retirement.

Many of the respondents to this same survey say they’re not there yet; only 48% feel financially healthy today.

What's standing in their way?

Nearly 7 in 10 (69%) cite at least one roadblock, such as not getting paid enough or constantly racking up more expenses.

But there’s good news.

A majority of the survey respondents (60%) feel confident in their ability to achieve financial health. Establishing that positive mindset is a good first step.

In honor of National Financial Awareness Day on August 14, you can use the occasion to take stock of your finances and prepare for your future. This month, consider acting on one of the suggestions below.

You may just find yourself closer to a sense of financial health.

Step 1: Know Where You Stand

Personal finance is a subject many people find daunting. But taking the initiative to learn more about your own situation will help you get on track.

Your net worth is a key indicator of your financial health. The majority of survey respondents (73%) agree. But far fewer (66%) can actually estimate their net worth.

Do you know your net worth? It’s simple to calculate:

• Assets: Add up your cash, personal investments, and retirement savings (like in your 401k), as well as valuable personal property like a house.
• Liabilities: Add up any money you owe to another person or entity. This includes revolving consumer debts -- like credit card balances -- as well as personal, auto, payday and title loan balances. If you’re using your home as an asset, include your mortgage as a liability.
• Subtract your liabilities from your assets. This is your net worth.

You can automatically track your net worth using online personal finance tools. For free, you are able to aggregate your financial accounts in one place to see that overall picture of your financial life.

Step 2: Set Financial Priorities

Once you have that holistic view, you can start to set your priorities. These are the big-picture ways you want to use your money. Do you want to pay off debt? Save for retirement? Start investing? With varying priorities, making a plan can feel overwhelming. 

Try writing down your plan for achieving your financial goals. This will give you something you can refer back to periodically to make sure you remain on track.

As you tick off goals over time, your priorities will naturally change. Every year or so, take the time to review your financial plan. This way, you can monitor your progress and make adjustments as necessary.

Step 3: Build Your Savings

The pandemic has certainly impacted financial mindsets. More than half of the survey respondents (51%) say having an emergency fund is a higher priority than it was prior to 2020.

How much should you keep in your cash cushion? I recommend saving enough to cover three to six months of basic expenses.

To determine the right amount for yourself, first calculate your average monthly spending. Focus on the unavoidable costs -- housing and utilities, insurance, groceries, debt payments, and transportation. Tip: You can do this automatically with Personal Capital’s free online financial tools.

How many months should you save up for? That depends on your personal circumstances. If you are healthy, have a working spouse and no children, then three months of savings will likely suffice. If you support children, have one income source and some health costs, then six months (or more) may be the right number. As your circumstances change, your savings goal may need adjustments, too.

Step 4: Invest for the Long Haul (and Make It Automatic)

With your emergency savings in place, you can begin focusing on long-term goals, like saving for retirement. A great place to start is with tax-advantaged investment accounts, like your workplace 401k, a health savings account, and/or a Roth IRA. By utilizing tax-advantaged investing vehicles, you can legally reduce your tax burden and grow your wealth over time.

Automating your contributions is the best way to make sure that your retirement savings come first -- not after all your other financial responsibilities. Automation can also help you stick with your long-term plan during market ups and downs. The history of the stock market indicates that what goes down eventually goes up.

At times, it can be challenging to maintain an unemotional approach to investing. Most survey respondents (76%) believe that advice is critical to feeling better about their financial picture. Professional advice can help you stay the course toward your current and long-term goals.

The Bottom Line

Gaining a sense of financial wellness is a process. The vast majority of survey respondents (82%) say their definition of financial health has changed over time.

This National Financial Awareness Day, take steps to familiarize yourself with a new aspect of your financial life:

• Are you sticking to a reasonable budget?
• How are you paying down any high-interest debt?
• Do you have a sufficient emergency fund?
• What are you investing in?
• Are you on track to retire when you want?

Having a grasp on these fundamentals will give you a greater sense of control over your money -- and your own definition of financial health.

^{This content is for informational purposes only and does not constitute investment advice. In a separate referral arrangement between Personal Capital Corporation ("PCC") and Benzinga.com, Benzinga is paid between $70 and $150 for each person who uses Benzinga's webpage to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital's free financial dashboard. No fees or other amounts will be charged to investors by Benzinga or Personal Capital as a result of the referral arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCAC will not pay increased management fees or other similar compensation as a result of this arrangement.}

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.