Managing Financial Risk: Financial Wellness Check for 2022
December 17, 2021
High wire artist and daredevil Karl Wallenda was internationally known for his dangerous stunts, often performed without a safety net. For years, he performed daredevil feats to countless audiences of stunned onlookers. Unfortunately, on March 22nd, 1978, Karl’s luck finally ran out, while walking a tight rope over one hundred feet in the air suspended between two towers of a hotel in Puerto Rico. A combination of faulty rigging and strong winds tripped up Wallenda, who fell to his death.
While it can be tempting to follow in the footsteps Karl Wallenda and take risks without a safety net, when it comes to money, it’s extremely important to understand and effectively manage your risks to ensure financial wellness. Here are several tips to keep in mind when handling financial decisions in the new year.
Maintain Adequate Emergency Funds
Before you make any important decisions, you should make sure you can pay for your regular living expenses. At the very least, opening a small savings account of $2,000 or less can help you weather short-term, unexpected hiccups without leaving you stressed about your bills. If you have the option, a long-term savings account with several months of living expenses will keep you solvent in case of larger financial crises such as a job loss or unexpected medical issue.
Find a Second Income Source
Piggybacking on the previous paragraph, another way to protect yourself from the financial stress of job loss is to diversify your sources of income. While not everyone has the time to start a side hustle, even something as small as selling old collectibles online can add some extra money to your emergency fund. If you’re able to put money into investments, you can even earn additional money without having to commit time to a side hustle or second job.
Minimize Your Debts
Debt often carries a higher interest rate than savings or investments and taking on excessive debt is one of the highest barriers to entry for most American families. This is what’s called a debt spiral, where an individual feels a loss of control thanks to chains of ever-increasing debt obligations. By staying away from excessive debt, you can maintain greater control over your finances, which helps to reduce stress.
Maintain Good Health
Speaking of stress: staying physically fit is not only good for your health—it also positively impacts your financial wellness! You’ll find that it costs less money to maintain good health, by taking steps such as regular exercise and healthy eating, than it will when you need expensive medical procedures to fix the physical ailments and diseases that come with poor health. While it is easier said than done, what better time than the New Year to commit to starting that diet or exercise plan?
Life is full of risks, so it’s important you do what you can to protect yourself. The goal of financial wellness is to reduce the overall stress that comes with budgeting and financial planning and putting yourself in a good enough financial situation where you can start thinking about things like investing and wealth generation.