April is tomorrow(!) and we all know what that means: Taxes. Like everyone, I am hoping for a refund. For this month’s science-backed snippet, let’s talk about financial fitness.
Can you pay your short and long-term bills? Are you progressing toward financial goals? Are you on track for retirement? Are you debt free? If no, or you don’t know, there is room for improvement regarding your financial fitness. Like other areas of wellbeing, finances need routine attention, preventative care, and maintenance.
Caveat
Capitalism, racism, misogyny, homophobia, and other prejudicial forces are pervasive and drive and maintain systemic economic inequity and inequality in the United States. I would be remiss if I did not say explicitly that the playing field for financial fitness is not level for all Americans. So, what can you do? To start, support businesses owned/operated by ethnically or religiously diverse, female/non-binary, and/or LGBTQ+ individuals. Write them a review if you enjoyed their product/service, which is what I will do for my tax preparer.
Financial fitness differs by generation
Millennials have lower financial knowledge and “report spending more than their income, having no savings for a rainy day, overdrawing their checking accounts, and borrowing from their retirement accounts at a greater rate than previous generations.” Further, only 38.8% of millennials know how much money is needed for retirement and only 47.4% have a retirement account.
Assessing financial fitness
Do you know where your money is going? If this question brings up emotions (fear, discomfort, anxiety, anger etc.), you are not alone. Many people are afraid to look at their bank account or use a budget. If you’re reading this and you don’t know where to start when it comes to your finances, the answer is here: What do I spend my money on? You need to know this before you do anything else like budget, save for emergencies (3-6 months of expenses) or for a major expense, make retirement contributions, or pay down debts.
Circling Back to Taxes
Maximize your tax refund by contributing to a pre-tax retirement account (Traditional). This may decrease your tax bracket percentage. You can also increase federal withholding (W4). Withholding essentially hides money from yourself that you get back later via tax refund. There are pros/cons to these options depending on your situation. Consult a tax professional and/or financial advisor.
Key Takeaways
Bottom line: Financial clarity reduces stress and anxiety
Hot Take: Finances are like private parts, you should be the most familiar with yours ~ Sophisticated and Scrappy
Application
Thank you for reading. To apply this Science-Backed Sunday Snippet, reflect on the three S’s below:
See: Examine where your money is going dollar for dollar. This is uncomfortable AND you can do it (and should do it regularly). Engage with others as applicable.
Suppose: What are your financial goals? Be specific. Identify one area to work on relevant to your goal (budget, paying off debt, savings, retirement, etc.).
Switch: What can you start, stop, or continue doing to achieve your goal?
[1] https://www.pewresearch.org/interactives/racial-and-ethnic-gaps-in-the-u-s-persist-on-key-demographic-indicators/
[2] https://www.pewresearch.org/short-reads/2023/03/01/gender-pay-gap-facts/
[3] https://link-springer-com.usu01.idm.oclc.org/content/pdf/10.1007/s10834-018-9595-2.pdf
[4] https://link-springer-com.usu01.idm.oclc.org/content/pdf/10.1007/s10834-018-9595-2.pdf
[5] https://link-springer-com.usu01.idm.oclc.org/content/pdf/10.1007/s10834-018-9595-2.pdf
[6] https://investor.vanguard.com/investor-resources-education/emergency-fund/whats-the-right-emergency-fund-amount