This article was first published in March 2024 issue of the International Association of Directors of Law Enforcement Standards and Training magazine.

Does the idea of making a major financial decision or even checking your bank account stress you out?

You’re not alone.

According to a report from the Federal Reserve, over half of Americans—across all income levels—are worried about their finances. Financial uncertainty is one of the biggest stressors in our personal lives today.

Life’s Unexpected Setbacks
As inflation pressures continue, two-thirds of working adults said they are worse off financially than they were a year ago. An unexpected financial setback can make it feel like your world is caving in around you.

Financial wellness isn’t equivocal to simply the amount of money one makes as a measurement of financial success, instead, it pertains to how well one manages one’s finances and establishes a degree of stability that leads to a more enjoyable life.

Some financial challenges might be out of your control, but with some planning you can equip yourself to manage whatever comes your way and build financial stability to maintain a positive lifestyle and to work toward achieving your future goals.

There are four components of building financial resilience― Spend, Save, Borrow and Plan.

These four components mirror your daily activities. What you do today in terms of spending, saving, borrowing, and planning can greatly impact your resilience and ability to pursue opportunities.

Spend - Prioritize Your Spending
You can build financial resilience and thrive financially with a spending plan. A spending plan is a plan for how you want to spend your money. It’s the most useful tool for achieving your financial goals. By understanding where your money goes and how savings and debt affect your financial resilience you can take control over your financial position.

A Simplified Spending Plan - The 50/30/20 Rule
The 50/30/20 rule is a simplified spending plan that recommends:
• Allocating 50% of your net income (your after-tax, take-home pay) to basic needs such as rent, car payments or public transportation, groceries, health care, utilities, and minimum payments on debt.
• Leaving 30% to spend on nonessentials which includes entertainment, travel, eating out, shopping, gifts, fitness, and things you can live without.
• Saving 20% to work towards building an emergency fund or long-term savings, and/or paying off debt, such as student loans and high interest credit card debt.

Understand where your money goes. Make your best estimate of current income and expenses and consider various ways to close the gap. Challenge yourself to track every purchase for one month to see exactly how much you spend per week. You might be surprised how much you spend on items that can be scaled back or eliminated giving you greater flexibility with your spending plan.

Monitor Your Debt
Debt is another critical component of a spending plan and a significant contributor to financial wellness. Nearly 8 in 10 adults in the U.S. have debt. The average household in the U.S. owes more than $135,000 in total debt, including mortgage, auto loan, credit card, and student debt.

Not all debt is bad. Many of us cannot buy a house or car without taking on some debt. These debts can be an investment in your future. However, it is vital to evaluate the amount of debt you are capable of handling and how long it will take you to pay off the debt.

A heavy debt burden can impose financial risk. While you may be able to sustain a higher level of debt and a comfortable lifestyle, economic shocks can potentially place a heavy strain on your spending plan, especially in the absence of savings.

Borrow - Keep Tabs on Your Credit Score
Borrowing isn’t necessarily a terrible thing—if you know how to compare loans and maintain a healthy credit score.

If you’ve had financial difficulties in the past, you can get stuck in a vicious cycle where your money goes to paying interest. That’s why building healthy credit is one of the most important steps toward achieving financial wellness.

While it is important to know what is considered a good credit score, there is more to understand regarding credit scoring and how it affects you. Even though it is simply a number, it can make a significant difference in your financial life.

Your credit score will often be used to determine the interest rate you will pay. Ultimately, the lender will be the one to determine the required score to obtain the best interest rates, but in general, credit scores in the higher range will generally mean the lowest interest rates.

Regularly review your credit bureau report, bank accounts, and credit card statements for mistakes or suspicious activity; keep documents and passwords secure to prevent scams and identity theft.

Request your free annual credit report from each of the industry-standard credit bureaus― Experian, Equifax, and TransUnion by visiting AnnualCreditReport.com.

Financial Resilience
Every small step makes a difference. Remember, building financial resilience is an ongoing effort that must be nurtured and maintained over one's lifetime. It’s never too late to start taking control of your finances and preparing for the unexpected to create more opportunities for achieving your goals.