“We know that happiness is the alignment of your behavior with what you really value,” says Bright Dickson, Culture Alignment and Activation Consultant at Truist.
This is also true when it comes to how we spend and think about money. But being happy about finances is a challenge nearly all of us face—especially after a year like 2020.
“The thing about money is that it’s inherently emotional … it touches all parts of our lives,” Dickson says.
For too many of us, money is a significant source of stress.1 And that’s understandable. But at Truist, we want to help turn finances into an area of life that inspires confidence and—dare we say—happiness. It’s less about the amount of money you have and more about how you command what you have.
Continue reading to see how the following eight essential principles can simplify your financial life, improve your well-being, and help you progress toward your goals.
Principle 1: Save for emergencies. Save three months’ worth of living expenses in a separate, liquid, emergency-only account.
No one expected 2020 to turn out the way it did, but that’s the nature of emergencies. The only way to be ready is to prepare for the unknown.
Unemployment peaked in 2020, reaching as high as 14.8%2 a key source of stress for American families. But you can plan for contingencies like job loss by creating an emergency savings account. Brian Ford, Head of Financial Wellness at Truist, calls emergency savings accounts “confidence accounts” because they can help you weather a storm.
“When it’s fully funded,” says Ford, “a tremendous amount of confidence will come into your life—so why not call it what it is?”
You should keep your emergency savings in a liquid account that you only touch for emergencies. If you don’t have one, start with whatever you can—even just $5 a week—with the goal of working toward $1,000. It’s OK to save slowly, but make it a habit to save a little something every month. Once you have $1,000 saved, your next goal should be to have at least three months of living expenses saved. Of course, you can always add more.
Exercise that savings muscle when you can, and your savings habits will get stronger.
Read more: Save smart: 5 simple strategies that help
Principle 2: Set a budget. Create a budget based on your values.
According to a survey by the Certified Financial Planner Board of Standards, having a household budget positively impacts our emotional wellness. They might be a lot of work to create, but having a set budget reduces stress, anxiety, and frustration and promotes feelings of control, confidence, and security. (Yes, please!)
“When we’re able to find control,” says Dickson, “our positive emotions go up, and we feel better.”
Create a budget that actively supports what you love the most: Connect it to your personal values or a purpose-driven goal. Consider expenses that support both short- and long-term happiness. For instance, factor in date night to invest in your relationship, but also budget for your retirement and emergency savings.
Principle 3: Manage debt and credit score. Pay off consumer debt and work to have a credit score above 720.
Free yourself from debt and feel empowered. Along with its impact on mental wellness, financial debt can affect our physical health.3
But the negative effects of carrying debt are reversible. Start by thinking in bite-size increments to reduce debt to manageable levels—Ford says to consider tackling debts under $1,000 first. From there, pay off balances with the highest interest rate, and then go on to the next-highest interest rate. If you’re able to make extra payments, it can help you pay less interest and stress less.
Raising your credit score is another positive side effect of paying off debt. If you can get your credit score above 720, it may enable you to get better interest rates on forms of debt you take on in the future (like if you buy a home or start a business).
Principle 4: Protect what matters. Work with accredited professionals to obtain appropriate insurance coverage and a will.
Working with an insurance professional (stamped with a CPCU, CIC, CLU, or AAI accreditation) to obtain appropriate coverage will help you feel secure. According to a survey by Life Happens, a whopping 69% of people with life insurance say they are less stressed knowing their family is financially protected.4
Getting to know the different types of insurance —from health and life to liability and long-term care—can help ensure you’re appropriately covered.
Principle 5: Invest and save for retirement. Invest at least 10% of your income for retirement.
Being financially prepared to retire gives us more than peace of mind. By considering the long-term happiness of future you, present-day you can rest easier.
Aim to invest at least 10% of your income for retirement, or more if you’re able or need to catch up. Make use of tax-advantaged vehicles like 401(k)s and IRAs—and avoid early withdrawals or borrowing against them at all costs.
Read more: 10 tips for hitting your retirement goals
Investing is another tool that can grow your long-term net worth. Consider taking a balanced approach by diversifying across industries and asset types using mutual funds and exchange-traded funds (ETFs), which helps mitigate some of the natural risk that comes with investing because you’re not putting all your eggs in one basket. Not sure where to start? Speak with a financial advisor. Millions of young investors dipped their toes into trading stocks for the first time when the COVID-19 pandemic prompted the S&P 500 to drop 34% in the first quarter of 2020.
Principle 6: Own a home or rent the smart way. Spend no more than 30% of your income on your total housing costs.
There is an actual term for when you spend more than 30% of your income on housing costs: It’s called “housing stress.”
Whether you rent or own, feel happier by spending no more than 30% of your gross income on your rent or mortgage, utilities, insurance, property taxes, HOA fees, repairs, and maintenance combined.
If you want to buy a home, consider having a credit score of at least 720 first, and—if you can—having 20% of the purchase price set aside for your down payment. You can still buy a home with a smaller down payment, but you may be required to purchase private mortgage insurance, which would add to the cost of your mortgage. If you can only afford a down payment of 5% or less, you may still be able to buy a home, but you may also consider renting while you build more savings.
Read more: 7 hidden costs every homebuyer should know
Principle 7: Focus on career development. Increase your income by developing your skills and professional relationships.
Your career can also contribute to your daily contentment. Putting emphasis on advancing your career development, whether through a certification course, skill advancement, or networking events, can significantly improve your mental well-being. Researchers have found that career development helps us determine not just jobs that will bring us the most fulfillment, but trajectories that lead to future well-being. Plus, people with high career satisfaction are more than twice as likely to thrive in life overall.
Principle 8: Give back. Share your time, talents, and resources to make the world a better place.
The next time you’re tempted to treat yourself, consider this: It could make you feel better to treat another. Generous behavior has been suggested to increase happiness.5 Which means you don’t have to wait for your finances and life to be all figured out. Share your time, talents, and resources with the world and community around you. Giving back doesn’t have to mean giving money.