Our mental health is priceless and financial wellness can do wonders for our psychological well-being.
We need to protect and improve our psychological, emotional and behavioral health to live well. Financial wellness isn’t a silver bullet for mental health but it can be powerful “medicine.”
This industry can take a toll on mental health across all roles, from owner to shift workers: chaotic schedules; lack of sleep; substance abuse; constantly and rapidly changing consumer behavior; the myth of work-life balance; competition for jobs, shifts and business; and financial stress can be incredibly damaging.
In the United States of America, money is the top stressor. This has likely been the case for several decades but we know finances have been the number source of stress since 2007. That’s the first year the American Psychological Association (APA) conducted their annual “Stress in America” survey.
Americans have reason to stressed out by their finances. Most Americans aren’t on track to retire at age 65, according to researchers at the Stanford Center on Longevity. Far less than half (39 percent) have the money to cover a $1,000 emergency. According to data from 2016, 69 percent of Americans have less than $1,000 in total savings. A third of Americans have no money saved.
Not all stress is bad, but stress that lasts for weeks, months or years can be detrimental to our health. Physically, long-term stress can lead to heart disease and a weak immune system. Psychologically and emotionally, too much stress makes us anxious, depressed and fatigued.
Start Saving Now
Removing or significantly lessening financial stress can improve our mental (and physical) health. The key is to start saving and investing for the future as soon as possible. The hospitality industry isn’t typically defined as 9 to 5 work. Things have started to change but many people who work in this industry don’t have benefits like a 401(k) because many small business owners don’t offer retirement plans.
A couple of weeks ago in New Orleans, Alicia Near and Meredith Graf, agents at New York Life, explained the importance of saving money to bar industry professionals. The NOLA office is the second-oldest New York Life office, having been around for 150 years. Near worked on the infamous Bourbon Street as a server for 7 years, “making lots of cash and lots of financial mistakes.” She wants to help others secure their financial futures and worry less about money.
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“I just wish, with all that cash I was making, I would have done something to make that money work for me,” said Near. Graf says she also made financial mistakes. Fresh out of college, she bought a car. She didn’t make or adhere to a budget, so she wasn’t saving money. This duo understands that everyone makes financial mistakes, even those who work in finance.
Near and Graf view financial wellness as a pyramid:
- Level 1: Protection. A strong foundation.
- Level 2: Accumulation. Make today’s dollars work for you for the future.
- Level 3: Distribution. Make sure you’re taking advantage of what your job is offering you.
Protection: Life Insurance
Starting here, we have life insurance. Near explained term life insurance and whole life insurance in housing terms. Term life insurance is like renting a house—it’s great, temporary, fills a need, and inexpensive.
With term, the premiums you pay go toward paying a death benefit to whomever you’ve designated as your beneficiary or beneficiaries should you die during a stated term (hence the word term). Whole life insurance is an investment. The premiums paid for this form of life insurance create value. You can either use that value later in your life or it can go toward a larger death benefit disbursement.
Accumulation: 401(k) and Roth IRA
Life insurance is the foundation of your financial pyramid—it’s there to protect you. Graf tackled Level 2, Accumulation. This level is where you amass money today for your future. A 401(k) is derived from your income. It comes out of your paycheck without being taxed. That means that when you go to pull money out, it will be taxed.
A Roth IRA, on the other hand, is a retirement account in which you can invest. The acronym stands for “Individual Retirement Account,” in fact. To encourage you to make this investment, you’re offered a tax benefit with a Roth IRA. It’s not tax deductible but when you go to take it out—hopefully several decades from now so you can live comfortably in retirement—it isn’t taxed. The lower the tax bracket you begin investing in a Roth IRA, the better.
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Look at a 401(k) and a Roth IRA like this: a 401(k) isn’t taxed on the way in but is taxed on the way out, and a Roth IRA is taxed on the way in but not on the way out. If you pull $50,000 from a 401(k), you’re not actually walking away with $50,000. However, as Graf explained, if you pull $50,000 from a Roth IRA, you walk away with $50,000 in your pockets.
There are limitations to both a 401(k) and Roth IRA. Currently, you’re able to save up to $19,000 in your 401(k). In 2018, that limit was $18,500. The limit on annual Roth IRA contributions is $6,000, up from $5,000 in 2013 (the last time this contribution was increased). If an individual makes $137,000 per year, they’re ineligible for a Roth IRA; married households are ineligible at $203,000. These limitations are why it’s so important to begin saving and contributing for your future immediately.
Graf said that people should be saving 20 percent of their annual salary for emergencies, investment and retirement. This leads us to Level 3, Distribution. After all, you’re saving to one day access and live on your accumulated funds. For this, Graf provided a real-world example.
Example: If a 30-year-old invests $100 per month in a Roth IRA, they would accumulate $200,000 by age 65. Increase the amount invested to $250 per month and that 30-year-old will have accumulated $450,000 by age 65. And if they can put $500 per month (the current annual limit) into a Roth IRA, they’ll have amassed $800,000 by age 65.
Switch the investor to a 35-year-old and the numbers decrease to $150,000, $300,000 and $500,000 by age 65. At age 40, those numbers are $100,000, $200,000 and $300,000. The longer you wait to begin investing in a Roth IRA, the less money you’ll be putting away for the future.
Seriously, Start Saving Now
The best thing you can do, the most important message to take away from all of this, is to start now. Get life insurance, take advantage of a 401(k), and invest in a Roth IRA. Life insurance protects your neck, a 401(k) and Roth IRA protect your legs (critical condition vs. serious condition).
If you work for a bar, nightclub or restaurant owner, ask them about benefits. Many independent owners and operators are realizing that benefits like a 401(k) are useful recruiting and retention tools. If you work for a restaurant, nightlife, hotel or other hospitality group that offers a 401(k), work toward maximizing your contribution and take advantage of your employer’s contribution match.
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When it comes to life insurance, research providers, ask them questions, and find the plan that works best for your financial situation and future. Companies like New York Life will answer questions, just like companies like Fidelity will help you with investments such as a Roth IRA.
If you’re the owner of a hospitality company, look into offering a 401(k) to your employees. Just looking at one job in the industry, bartending is considered a long-term career. Recruiting and retaining the most talented bartenders is crucial to your success. Failing to retain employees is costly and benefits like a 401(k) should be part of your business strategy. Talk to your team members and encourage them to save for the future.
Removing the long-term stress attributed to worrying about finances can result in a healthier, happier workforce.
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