The 5 Rules of Financial Health, According to an Expert

While financial stress isn't exactly a novel concept, our generation definitely feels the pinch more than ever: Research shows that one in three millennials experience anxiety about money. That's why this week, we're tackling financial wellness from every angle. Get expert advice on everything from the psychology of saving to investing when you have no clue where to begin. Financial empowerment is the ultimate goal, but you just might raise your bottom line, too.

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The term "financial wellness" seems apt to describe a topic that most Americans consider to be a sizable stress in their lives. Mitigating anxiety is an important part of any self-care routine, so shouldn't that include managing your bank account?

That said, even if you have a loose budget and a savings account in place, it can still be tough to know if you're doing everything possible to keep your financial health in check. For that, we turned to financial expert Kristin O’Keeffe Merrick. Keep scrolling for the five rules she swears by to keep monetary stress at bay.

Rule #1: You know the difference between fixed and variable expenses.

When putting together a budget, step one is separating the monthly costs that never change—things like rent, your cable bill, and insurance—from expenses that you have more control over, like food and entertainment. Barring a living situation that's beyond your means, variable costs are the part of your budget where you can trim the fat and get really aggressive about saving.

Do you need all your streaming subscriptions, for example? Can you bring your lunch to work instead of getting takeout every day? Subtract your fixed expenses from your monthly income to see exactly how much wiggle room you have for your variables—and then, set a very detailed budget accordingly.

"Ideally, you have gone through the budget and found that your cash in each month (income) exceeds your cash out each month, at least on a fixed and variable cost basis," says Merrick. "If your cash out exceeds your cash in, you are living beyond your means and you need to do some serious evaluation."

Rule #2: You're fluent in your spending.

Any savvy saver knows that complete transparency is the bedrock of financial health—you need to know exactly where every single dollar is going in order to retain the most cash. It's not necessarily easy in the era of Postmates and Venmo. "In this day and age, we are quickly becoming a ‘cashless’ society," says Merrick. "So many of our transactions are done without any thought. As a result, we can go through an entire day and spend $100 without ever having an exchange of money. That adds up."

If you're just getting started, it's time to bite the bullet and pore over your bank account history, no matter how scary that is. "Dig deep and go back over your spending in the past six months," she says. This will give you a clear picture of exactly where you can trim your expenses.

Rule #3: You're not just living within your means—you're saving, too.

If you're living at least somewhat comfortably each month, it can be all too easy to take a "flexitarian" approach to your budget. You know you're still in the green, so you don't have to monitor yourself too closely, right? But this mindset can ultimately make you miss out on hundreds (thousands, even!) of dollars in savings, which you'll definitely miss should an emergency arise.

Financially healthy folks know that every dollar should be put to work, and that means putting any extra cash that isn't covered by your budget right into your savings. Doing this will also make you take pause before overspending—is what you're eyeing on Net-A-Porter really crucial enough to make a dent in the money you're putting aside for a new car?

Rule #4: You're not passive about saving money.

Putting 10% of your paycheck in your savings each month is a great first step. But it's also easy to "set it and forget it," which is where that mindless spending starts to seep back in. Instead, you'll want to constantly reevaluate how much you contribute to your savings based on your goals and income, says Merrick.

"Make it an active part of your life," she says. "Mark it on your calendar and start to set bigger goals. If you find that you're not missing the money you're already putting away, increase the amount—even if it’s by $10 to $20 per pay period. That money adds up over time."

Rule #5: You're resilient after a misstep.

Even if you're diligent, mistakes happen—as do emergencies and other extenuating circumstances. What's more important is how you react, says Merrick. "If you fall behind, create a plan: What happens if you miss a few weeks of savings goals? Don’t give up. Just devise a strategy to get back on track."

Really, your financial health comes down to keeping yourself responsible—even if you need to recruit someone else to help out. "If you are serious about it, set benchmarks, and have an accountability partner," says Merrick. 

Next up: This is your brain on shopping.

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Haobin Ye