Financial Wellness Tips for the New Year
By Vishal Jain, Head of Financial Wellness Strategy & Development at Prudential
Getting your financial house in order is one of the most common new year resolutions. We invited our financial wellness partner, Prudential, to share some tips to get you started.
After all of the challenges 2020 brought, many of us are looking at 2021 as a new beginning. With that in mind, making a few smart money moves now can set you up for financial success this year—and beyond.
Getting started may be easier than you think, if your company is among the growing number of organizations boosting the financial wellness tools and solutions that they offer to their employees. We’ve partnered with Welltok to make it even easier for workers to take advantage of these offerings.
Even if living through a pandemic has reshaped your financial priorities, you can still use your workplace benefits to help you reach your money goals. Here’s how to get started:
Make the most of your workplace benefits
Make sure you’re contributing at least enough to get any employer match on your retirement plan contributions. That’s free money after all—and a return that’s impossible to beat. But 2021 may offer an opportunity to increase your contributions even further.
The shift to remote work is expected to save employees between $2,500 and $4,000 per year due to reduced work-related expenses such as commuting, and potentially freeing up additional cash you can save for retirement. This year, you can put up to $19,500 ($26,000 for those age 50 and older) into your 401(k).
Even if you’re already maxing out your 401(k), it’s worth taking another look at the account. If recent market fluctuations have thrown your asset allocation out of whack, you might need to rebalance your portfolio. You might also consider allotting some of your contributions to a Roth 401(k), if your employer offers one, especially if you think that tax rates may go up in the future.
Of course, your 401(k) isn’t the only workplace benefit that can boost your financial security. Some employers also offer voluntary insurance programs that can reduce the coverage gaps left with traditional insurance plans. Critical illness, accident, and hospital indemnity insurance can provide peace of mind in knowing that an unexpected illness won’t derail your financial wellbeing.
This is also a good time to re-examine your life insurance coverage, especially if you’ve recently hit financial milestones such as getting married or having a baby. Use this tool to get an estimate of how much you might need.
Build your safety net
One lesson the pandemic has made clear is the importance of a rainy-day fund. More than a quarter of Americans have had an income disruption, such as a furlough, salary decrease, or hours reduction, during the pandemic, and 17% saw their household income fall by half or more in the wake of the outbreak.¹
With a heightened likelihood of job loss, medical emergencies, or the need to take unpaid leave, Americans’ biggest financial regret in the pandemic was not having enough emergency savings.² Nearly 40% of workers have less than $1,000 saved to deal with emergency expenses.³
The easiest way to start or build up such savings is by making it automatic—that way you don’t have to worry about remembering to set money aside or accidentally spending money that you meant to save. Some employers now have an emergency savings account built into their 401(k) programs, allowing you to automatically set aside after-tax funds through payroll deductions.
If your company doesn’t have such a program, you can still create guidelines to create your own emergency fund.
While it’s best to aim to save at least three to six months’ worth of expenses, if that seems overwhelming, start by setting aside whatever amount works for you. Small, regular contributions may add up more quickly than you think. If you do need to dip into this account in an emergency, be sure to return to the savings habit and rebuild your reserves as soon as you can.
Maintain good habits developed during COVID-19
COVID-19 has impacted every aspect of our lives over the past year, and there are some lifestyle changes that may make sense to keep even after you’re able to leave your house mask-free. The pandemic has redefined the way many of us think about “wants” and “needs.” If you’ve cut down on spending on things like clothing or going out, see whether you can continue the practice.
In addition to lower spending on leisure expenses such as travel and dining out, you may also have additional funds available this year, thanks to stimulus checks or temporary debt relief. Consider using some of those funds to pay down debt, create an emergency fund, or boost your 401(k) contributions.
Opt into workplace financial wellness
Your company may offer additional programs aimed at helping you reach your personal money goals, whether you’re focused on reducing debt, sticking to a budget, or broader financial planning. If you have student debt, for example, your employer may have a student loan assistance program that will help you evaluate educational debt to determine whether it makes sense to refinance. Some companies even have debt repayment matching programs.
These programs reflect a growing awareness from companies of the relationship between their employees’ financial lives, physical health, and workplace productivity. Taking full advantage of your employee benefits is a simple and easy way to have more control over your money, despite the uncertainty that’s come to define the “new normal” for many.
Even before the pandemic, finances were American’s biggest source of stress.⁴ So taking positive steps to improve your financial security and take control of your money may also lower your overall stress levels. That’s a reward that you can always enjoy—no matter what 2021 brings.
Learn more about Welltok’s partnership with Prudential and how to make financial wellness resources available for your people. Contact us today.
©2021 Prudential Financial, Inc. and its related entities. Used by permission. Prudential is not maintaining or updating this content and disclaims any liability to any party for the accuracy or completeness of the content.