If you’re feeling stressed about your finances—especially these days—you’re not alone. According to Prudential’s latest Pulse of the American Worker survey, nearly seven in 10 workers (68%) now worry about their financial security. Meanwhile, a special report from Prudential’s Financial Wellness Census found that nearly half of Americans (46%) are struggling financially due to the COVID-19 pandemic. Indeed, too many are having a hard time paying bills, lack sufficient emergency savings, aren’t on track to meet long-term savings goals like retirement, and face significant financial risks such as disability or premature death.
Even so, your financial wellness is mostly unique to your goals and where you are in life. Depending on which aspects you need help with, a variety of tools and guidance can help you dramatically improve your financial standing.
Prudential has identified three pillars of financial wellness that can help anyone improve their financial well-being:
- Managing day-to-day finances. Learning to manage your budget, understanding your credit score and building short-term emergency savings so you can better handle life’s day-to-day ups and downs.
- Setting and achieving goals. Do you know how much you have saved for retirement—and how much retirement income you can expect? If you’re not saving enough now, do you have a plan to get there? Are you taking advantage of employer-sponsored retirement plans? IRAs? While retirement is just one example, setting and making progress toward short- and long-term financial goals are a big part of achieving overall financial wellness.
- Protecting against risk. Protecting yourself—and your loved ones—against serious financial disruptions and setbacks can go a long way toward lowering your stress. From life insurance to health insurance to retirement savings, having the resources to navigate and manage financial challenges such as a serious illness or injury, or the premature death of a spouse or breadwinner, is key to a financially secure life.
People who are financially well can comfortably pay their bills, manage their monthly expenses (without living paycheck to paycheck) and conserve money for emergencies. They can also save for long-term goals and feel confident about their future. They’re resilient in the face of financial setbacks because they have the right resources and strategies in place.
Are you ready to join the ranks of the financially well? Here’s more about the pillars of financial wellness and how to build the right strategies for your financial journey.
Manage day-to-day finances
The first fundamental of financial wellness is organizing and understanding your everyday finances, then finding the pathway that works for you to create a sustainable budget.
Many Americans are feeling financial stress from the challenges of managing their monthly budgets and everyday spending. According to Prudential’s Financial Wellness Census special report:
- One in four (24%) Americans have fallen behind in paying their bills—including one in 10 (9%) who’ve missed a mortgage or rent payment.
- One in five households (19%) has debt related to health-care costs. (For those without emergency savings, that number rises to 26%.)
- Fully six out of 10 (61%) say it’s getting harder to “keep up with my financial obligations, despite having a job.”
Here are a few ways to create a healthier day-to-day, week-to-week financial game plan:
- Create a budget. Track your spending for 30 days—every purchase, every dollar—to understand where your money goes. You might be spending more than you realized on impulse purchases like eating out, subscriptions and (pre-COVID-19) gym memberships you don’t use anymore, or other discretionary spending. Prudential’s Slice A Budget tool can help you strike a better balance between how much money comes in and how much goes out each month.
- Pay down debt. If you’re paying only the minimum on your credit card balances, you might be racking up thousands of dollars in interest payments. Prudential’s Debt Manager tool can help you prioritize your payments and pay off the right loans first.
- Build an emergency fund. Along with paying off debt, it’s important to build up emergency savings in a safe, liquid, interest-bearing account (like a bank savings account) that’s easy to access. A good general rule is to keep a cash cushion of three to six months’ living expenses—must-haves like food, shelter and utilities—though, as many people who lost their jobs during the pandemic have learned, even more is better. Having a comfortable rainy-day fund in the bank will help you avoid the stress of financial emergencies or a short-term loss of income.
- Understand your credit score. If you haven’t checked your credit recently or don’t know what your credit score is, it’s time to find out! Understanding your score will motivate you to keep paying bills on time, manage your debt and enjoy the benefits that come from good credit.
These fundamentals are all part of a virtuous cycle of day-to-day financial wellness. The less you spend, the more you save and the stronger your finances.