Popular financial New Year’s resolutions include goals like saving more money and paying down debt. If the idea of focusing on dollar signs does not sound motivating, consider a resolution to feel better about your overall financial situation.
“Over the past few years, the Consumer Financial Protection Bureau has interviewed and surveyed adults across the United States about what’s working well with their personal finances,” says Peggy Olive, University of Wisconsin-Extension/UW-Madison Financial Capability Specialist. “The CFPB and partners, like UW-Madison, used this information to come up with common factors for people who feel better about their financial situation.”
Financial well-being involves having financial security along with a sense of freedom around financial choices. The common factors for people with financial well-being include having a handle on day-to-day spending that allows for some wiggle room in the budget for personal priorities, as well as having a plan to deal with emergencies and making progress towards financial goals. However, every household’s specific financial priorities, spending, and goals is unique.
The first step is to have a handle on your monthly budget. Keeping track of how much money is coming and going each day helps people be more aware about which expenses are set in stone and which are more flexible. Fixed expenses, such as rent or a car payment, are harder to change in the short run, but may be necessary to re-examine in the long run if a household is having trouble making ends meet.
“The idea behind tracking spending is that you can control flexible expenses in order to spend more on items and experiences that are most important to you,” adds Olive. “The more wiggle room you can find in your budget, then the more you can spend on your personal priorities and goals.”
A financial goal is a dream that has a dollar amount and a date attached to it. Some goals have set deadlines, such as when a child starts college, while others may be more flexible, like a new vehicle or your retirement age. How much money can be set aside to make progress towards a goal depends on each household’s situation. When you examine daily spending and flexible expenses, look for places you would be willing to cut back on now to reach your future goals. Some households set aside additional sources of income, such as a tax return or gift, to bump up progress towards goals.
Having goals around when you plan to purchase a new vehicle or retire is a great start, yet life does not always cooperate when the old car breaks down or health problems lead to early retirement. A sense of financial security also comes from having a plan in the event of an emergency. A plan can include having money in the bank, having a line of credit on a credit card or home equity loan, or even having a conversation with a friend or family member about being able to borrow money in the event of an accident, illness, or job loss.
Everyone needs to be able to make choices about spending decisions to the extent possible within their budget. Paying attention to daily spending helps to focus future spending on priorities and goals. To get your own financial well-being score, complete this 10-question scale.
For more information on managing family finances, visit the UW-Extension financial management website or contact your local Extension office.
