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Financial Wellness Month

January 05, 2024

January is Financial Wellness Month, and for good reason. December was and usually is a month where many of us overspend. Unfortunately, that means we must reassess our budgets in January, for those of us with budgets. You can only kick the can down the road for a limited period. Even if you did not overspend, January is a suitable time for a financial review because it is typically the month we set new goals through New Years resolutions. However, financial wellness describes much more than a financial review. It includes how you feel about your financial situation, knowledge of how to manage your financial life, and the resiliency of your personal finances.

As a wealth manager, I collaborate with employers who want to help their employees improve their financial lives through retirement plans and financial wellness programs. These programs vary from employer to employer, and can include comprehensive financial plans, goal setting, one-on-one consultations, and classes on various financial topics. While not all employees take advantage of the program, it could be a way to feel more confident in their finances.

This confidence can help address financial stress and that can help with presenteeism and absenteeism. When an employee is stressed about financial concerns, it can easily affect performance. It is hard to concentrate at work when you are worried about your electricity being shut off or whether you can make your mortgage payment. If your electricity does get shut off, you may have to take time off to take care of the bill and get reconnected. Even if you do not have to take a day off, at the very least you will need to make phone calls.

There can be multiple reasons we end up in difficult financial situations like late mortgage payments or utilities. Sometimes, it is the result of an unforeseen family tragedy or wrongful lawsuit. However, there are financial tools and knowledge that could help lessen the impact of those tragic events that many people are not aware of. For some people, the only opportunity they may have to learn about finances is through their employer. If the employer has the foresight to implement a financial wellness program, it might be a life preserver in stormy seas.

As I am writing this blog, I want to share a story about an employee who is well into their fifties, is highly educated, and has very little retirement savings. They were so happy to learn I would be collaborating with them to help straighten out their finances through a financial plan and investment management. I could feel their relief through the phone. They even used the word “excited” about our upcoming meeting. Employees are often grateful to their employer for making the decision to implement a financial wellness program. How is that for generating loyalty!

The topics we cover in our classes range from the basics of budgeting to the basics of investing, to college planning, and advanced topics like estate planning and wealth management. They are tailored to the needs of the expected audience. Some people attend regularly while others only attend classes they find interesting. Either way, if they pick up a nugget of information that improves their financial life, they may boost their confidence and feeling of wellbeing. If they find something they can put into practice with their own personal finances, the goal is an improvement in their financial resiliency. 

That financial resiliency brings us back to my earlier comment about how people end up in difficult financial situations. Sometimes it is the result of an unavoidable tragedy that would have been impossible to plan for. However, with proper planning, many risks are brought to light and strategies are put into place to mitigate their impact. Having the appropriate emergency savings or insurance can make a significant difference. How much emergency savings to put aside and how much or what type of insurance to buy are different from person to person, so using popular rules of thumb is not always accurate.

The most common issue I see with emergency funds is the lack of any or just not enough. Another issue is the opposite, where people hoard cash and keep too much in an emergency fund. There is often a psychological fear of not having enough. This can lead to risk aversion but, when you keep too much in cash, you can negatively impact growth or income. The reason it impacts overall growth and income is that emergency funds must be accessible and low risk, which often results in low returns.

Insurance can have an impact on your financial resiliency, as well. It can mitigate certain risks but, it is impossible to cover all risks, and it can be expensive. I have a wealthy client who often complains about being insurance poor. Before meeting me, this client purchased a lot of different insurance policies. Some of the policies had overlapping coverage, some were old and outdated, and others were more coverage than they needed. In their attempt to improve their financial resilience, they used a large amount of their income and savings to over-allocate to insurance. Again, insurance is a great tool. You just have to be smart about why you are getting it, what your financial goals are, and how you want to spread your income and savings across the many financial tools out there.

So, during Financial Wellness Month, use this time to increase your financial knowledge. If you are an employer, consider implementing a financial wellness program in the workplace for your employees. Consider talking with a financial advisor to find out more about how you can improve your financial wellbeing. It may take some time to get everything in place but the greatest journeys in life all have one thing in common… taking the first step.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

All situations are hypothetical situations based on real life examples. Names and circumstances have been changed.