You may have heard the buzz around financial wellness. Everyone is selling financial planning and new, easy ways to obtain financial wellness. As with any marketing push, you might be asking, What is this? Do I really need it?
In this case, you really do need to focus on your financial wellness. A confluence of both external and personal pressures has made a financial wellness check just as important as an annual physical with your doctor.
[To read more of Nerre Shuriah’s thought leadership click here]
Most economic events are out of your control, but they do influence your finances. Some examples are:
- Recent changes to the tax code. The Tax Cut and Jobs Act made an attempt to simplify taxes, but it has created some confusion for taxpayers, especially with the planned expiration of many provisions affecting individuals at the end of 2025.
- General reduction in saving. Experts recommend saving 10 to 20 percent of your income for retirement, yet 41 percent of Americans are saving 5 percent or less. Only 26 percent are able to save 11 percent or more of their income. Broad economic factors that generally inhibit the ability to save are high student loan debt and wages that aren’t keeping up with increases in the cost of living.
- Longer retirements. Life expectancy has increased, and one-quarter of 65-year-olds will reach age 90. This means we have to plan for 30 years of retirement. That may be as long as some workers are in the workforce.
- Fewer pension plans. With traditional pension plans, the employer shoulders the risk and responsibility of providing retirement income for their employees. However, over time, most employers have shifted to providing 401(k) plans instead, effectively transferring the burden of investing and saving to the employee. Many employees do not invest appropriately or do not contribute enough to their 401(k) plans in order to fully fund their retirement.
Personal factors also affect your finances. They can be loosely categorized into the following three areas:
- Cash flow and retirement. This incorporates your budgeting and spending, managing debt, and saving for retirement.
- Risk and insurance. Emergency funds, estate planning, and planning for incapacity are key considerations. A lot of products are designed to address risks, including many types of insurance, but the real focus is on identifying areas of risk or potential loss and putting a protection plan in place.
- Behavioral dynamics. This includes your relationship to money and your ability to stick to your plan and achieve your goals. Like a gym membership, you won’t get fit if you don’t exercise. Similarly, you can have an amazing financial plan but you must stick to it to make it work.
A wide variety of goals and concerns can be included in a financial plan. Let’s look at one example of how a financial planner can help.
JOHN AND JILL CLARK BUY THEIR FIRST HOME
John and Jill Clark were buying their first home. Their offer on a $500,000 house was accepted. The Clarks went to their bank, and the banker suggested 20 percent down to avoid private mortgage insurance and get the best purchase rate. The clients said they wanted a 30-year fixed, and locked their rate at 4 percent.
The Clarks were excited to tell their financial planner about their first home purchase. Their planner asked why they chose a 30-year fixed. John said, “I just thought it was the safest type of loan, especially after the financial crisis.”
The planner asked a series of questions:
Q: What is the purpose of this home?
A: We are buying it to build a family, pride in homeownership, and diversify assets.
Q: What about this home did you like the best?
A: It’s close to work.
Q: How long do you see yourself living there?
A: Around five years—John wants to change employers in five years and would move if he lost his job.
Q: Could you afford the mortgage, taxes, insurance, and living expenses if you were to lose your job? If so, for how long?
A: Yes, for six months.
Q: Who else did you get rates from?
A: Just our bank, which we have been with for 10 years, because they should give their long-term clients the best rates.
After gaining additional insight into the clients’ plans and goals around home ownership, the planner recommended getting additional rates for comparison. He suggested a seven-year fixed, amortized over 30 years since the Clarks did not plan to live in the home longer than five years. They found another bank offering a 7/1 ARM loan program at low rates. The Clarks compared the following mortgages:
| Current Locked Mortgage | Second Option with Another Bank | Third Option with Another Bank | |
| Loan Amount | $400,000 | $400,000 | $400,000 |
| Interest Rate | 4% | 3.875% | 3.5% |
| Term | 30-year fixed | 30-year fixed | 7/1 ARM |
| Monthly Payment | $1,909.66 | $1,880.95 | $1,796.18 |
| Interest Paid after Seven Years | $104,649.42 | $101,240.68 | $79,990.67 |
The planner suggested that the Clarks share these rates with their bank. When they did, their bank matched the competitor’s rate without charging to relock the loan. The Clarks’ unbiased financial planner helped them save approximately $24,658 in interest over seven years, and choose a product that better matched their goals for the purchase.
You should engage a financial planner for your entire financial life. Your planner can help plan for the purchase of a home and with many other concerns, such as:
- Creating a budget that balances necessary versus discretionary expenses while also helping you pay down debt, especially managing the burden of student loans while getting married, buying a home, having children, or starting a business.
- Projecting a retirement plan that allows you to determine a strategy to have a retirement filled with activities that you want (travel, volunteering, paying for grandkids’ college). They will also perform stress tests so you can see how you will fare in an economic crisis.
- Considering risks and options, such as the effect of a long-term-care event on your plan, or the benefits of taking Social Security at a later date.
- Comparing the benefits of a traditional 401(k) or traditional IRA versus a Roth IRA. For instance, if you plan to leave a significant legacy for your children, it may be best transferred as a Roth rather than a traditional IRA since it will not be subject to income taxes.
- Helping you adjust your plans and goals based on life events, such as a divorce, marriage, or dependent with special needs.
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This list is not comprehensive, but shows the complexity of issues that many people try to figure out on their own. Working with a planner to assess and achieve financial wellness gives you access to an unbiased professional who assists with difficult monetary situations, someone who proactively identifies possible pitfalls and knows you well enough to help you stay on track. Achieving financial wellness gives you the power to change your life and enables you to weather any financial challenge.
