Four Critical Steps to Financial Wellness
Article Courtesy of ANB, Amarillo National Bank
April is Financial Literacy Month, and after a year in which so many experienced uncertainty related to their jobs and income, there’s never been a better time to get your financial house in order. Financial literacy is knowing how to manage your money in a way that improves your financial well-being. Just like physical fitness can vastly improve quality of life, achieving “fiscal fitness” can also transform your day-to-day.
Ben Clark, Banking Officer at ANB, suggests taking these four foundational steps to financial wellness.
- Budget, Budget, Budget
“The absolute first thing you have to do is budget,” Clark says. “You have to understand the money coming in and the money you have going out.” He defines financial wellness as a person’s relationship with money and their income, so knowing exactly where that money is going, from one month to the next, is critical.
To begin, spend a month tracking your income and all of your expenses. Once you have an idea of expenditures, avoid surprises by automating your bill payments. (One easy way to do this is by using the Bill Payment feature of the ANB mobile app.) Then, create a simple budget by designating what you have to spend every month—including food, transportation, and utilities—as opposed to the things you want to spend money on. Once you’ve made a plan, stick to that plan.
“Many people have been living paycheck to paycheck, especially during the pandemic,” he explains. “So it’s very important to stick to a budget if you’re trying to get your finances on track.”
- Establish an Emergency Fund
It’s become clear over the past year how easily an unforeseen crisis, from a job loss to a vehicle repair, can wreck a family’s finances. Having an emergency fund is a way to cushion that blow. Unfortunately, nearly 25 percent of Americans have no emergency savings at all. And according to an early 2020 report, four out of ten Americans haven’t set aside enough money to cover a $1,000 emergency. By building emergency savings into a budget, however, you can establish an emergency fund. Clark describes this as a way of “paying yourself” first.
“Set up a basic savings account and put money in it every month,” he says. “That way, if you have an emergency or you need to put four new tires on your car, you don’t have to borrow from us.” He says ANB regularly makes personal loans to customers for as little as $500 or $1000 to cover these kinds of unexpected costs. But an emergency fund allows you to be your own banker. Clark says a standard ANB savings account can be linked to your checking account, making the process easy. “You can automatically transfer an amount of money every month, and you can access it easily with no restrictions,” he says.
- Know Your Credit Score
A credit report provides an overview of your financial situation, which is why lenders rely on it. “You need to be very aware of your credit score,” says Clark. “For one thing, it helps you avoid any identity theft or fraud issues. If something on your credit score seems unfamiliar, you can take the steps to fix it. But a bank like ANB definitely uses your credit score to make decisions about loans and offering the most favorable interest rates.”
He suggests checking annualcreditreport.com to get a free copy of your credit report. That service draws from each of the three main reporting agencies—TransUnion, Equifax and Experian. If you want to improve your credit score, start by paying your bills on time, keeping your credit card balances low, and working to pay down any debt. A customer’s debt-to-income ratio has a significant impact on a score. For additional help in improving your credit score or to learn more about topics like credit utilization, talk to ANB.
- Downsize if Necessary
Sometimes, the best way to change your financial situation is to simplify it. “It’s okay to downsize,” says Clark. “Sometimes you just need to concentrate on the basics: housing, utilities, food, transportation and medical.” If you need to make temporary adjustments, do it! Financial wellness won’t happen overnight, but simply paying attention to how you spend money brings you closer to taking control over your finances.
Clark and ANB love helping customers reach their financial goals. To learn more, visit your nearest branch or head to anb.com.