Financial wellness is an important part of our everyday lives, whether we’d like to admit it or not.
And it may sound like a cliche concept, but the fact is that it can impact so many areas of our lives.
Yet when you see some finance stats like these…
- Two-thirds of Americans would struggle to scrounge up $1,000 in an emergency, according to The Associated Press-NORC Center for Public Affairs Research.
- 43% of Americans spend more than they receive each month borrow and use credit cards to finance the shortfall. (Federal Reserve)
…it’s pretty clear that there are some financial issues in America. Below, I’m going to explore more about financial wellness, why it’s important, and tips to help get you on the right financial path.
What is Financial Wellness?
At some point, you probably have heard financial wellness mentioned, discussed, or even came across it while reading some article.
While I can put a definition on it, remember that it also can mean something very different to you. There is no exact right or wrong answer, as everyone has various personal finance goals and interests.
That said, financial wellness is simply your overall financial health as an individual.
It’s how you manage your personal finances and family’s finances to ensure you are comfortable, able to live, and are not feeling stressed about money.
The main components to your financial health include:
- Being able to cover monthly and day to day expenses with no worry.
- Ability to buys some extra things you want, without struggling.
- You can cover unexpected emergencies or bills without stressing.
- You have choices when it comes to where you live, having children, and buying what you want within reason.
- And you are setting future financial goals and creating a plan to achieve them. Like buying a house, saving for college, retirement planning, etc.
Of course, that’s only a few areas that will impact your financial wellbeing.
But learning how to maximize your financial wellness now ensures you can handle various financial situations in the future.
The Basics of Financial Wellness
While the above are the main components of financial wellness, these are the basics of getting on the right path.
Some of these basics are quite challenging for many people and may be for you too. No one said finances would be easy!
Being financially well starts with having a reliable income and knowing at a consistent time, you will expect to be paid a certain amount.
Making money is definitely the cornerstone of financial wellness and increasing your income can help you obtain your goals. You do not need to be a millionaire, but should obtain some level of comfortability.
Debt Payoff plan
If you don’t have debt, then that’s great! You are a step ahead to your financial wellness. But debt is quite normal whether via student loans, credit card, or if you have a mortgage.
But you should know how much debt you have, the interest on this debt, where your payments are going, and establishing a payoff plan. Even by understanding those things about your debt, you are on a path to wellness.
For high interest loans like credit cards or student loans, you want to find a way to pay that down as soon as possible.
It’s the most cliche financial advice, establishing an emergency fund. But as much as I get tired of hearing about it, this is still crucial to your financial wellbeing.
Establishing an emergency fund helps you stay prepared for the unexpected or when “life happens.” But now, you won’t stress about the money because you have a nice cash reserve that you can access quickly.
You’ll see all sorts of recommendations from 3-4 months to 6-12 months of expenses ready to go. Ultimately, it’s what you feel comfortable with.
I also recommend putting this money in a higher yield interest, which many online banks offer. One you might want to consider is CIT Bank’s Savings Builder, which helps put your savings to work without risk.
Creating A budget
Another common personal finance tip is creating an accurate budget for yourself. But beyond creating it, also sticking to your plan.
You should know where your money is going each month and how much cash you’re bringing in.
Personally, I find budgeting tedious and you can become too obsessed with it. However, if you are looking to just start on the financial wellness path, it’s critical you dive into a budget.
Setting one up can be done simply with a spreadsheet or you can use a tool like You Need A Budget.
Build Some Investing Knowledge
Besides understanding how to pay off debt and save money, you should be able to take it a step further. This means getting down the basics of investing money.
By no means do you need to become an investing guru, but understanding the concepts of why you want to invest your money and the options for investments will help your financial wellness grow.
The idea of having good credit is key to how well you live. It determines things like your interest rate, mortgage rate, if you’ll get approved for any loans, and even down to being able to apply for credit cards.
While the credit system might be a bit odd for calculating scores, it’s important you know how to manage and influence your credit in the positive direction.
Financial wellness includes monitoring your credit report and learning how to improve or maintain a good score. To check your credit reports for free, use one or both of the options below:
While this will go along with investing knowledge, retirement planning is another area to learn about.
Are you saving for retirement and contributing money for your future?
The earlier you begin, the more compound interest goes to work for you in your future.
Understanding the basics, how 401k’s work or IRA’s, and setting a plan to contribute money towards this will ensure you are financially well into retirement age.
Again, your finances and what may be important to you will vary. But, the above are the basics of financial wellness that essentially everyone will have some focus on at some point.
Why is Financial Wellness Important?
Being financially well means having enough money to cover your immediate expenses, pay off any emergency bills or fees that pop up, and have a steady income that covers your lifestyle.
But beyond those more obvious reasons that financial wellness is important — is it impacts your overall happiness.
While we don’t want to only correlate money equaling to happiness, being able to take care of oneself, family, and not stress — is impacted by our financial wellbeing.
If you have ever been stressed about money, you probably know exactly the impact it has on your life.
When I was trying to escape living paycheck to paycheck a few years back, initially I was losing a lot of motivation and felt doomed. It impacted my mood and how I felt about the future financially.
Now, how money stress affects you might be different from me. But there are a few areas where it may start to impact you in your life.
- Can trigger mental health conditions (anxiety, depression, stress)
- Negatively impact your overall mood and interactions with others
- Physical health can be affected too (not being able to take care of yourself, reduced energy, etc.)
Those are all important things you want to focus on to live a better, fulfilling, and happier life.
And by improving your financial wellbeing, you’re better able to live on your terms, do what you want to do, and not worry about how you’re going to pay for something.
That is the ultimate feeling of freedom!
Achieving Financial Wellness Tips
The sooner you are prepared, the better. But anytime you start is better than never!
I personally got a somewhat common start in my mid twenties. Others started early in their teens and others started a bit later, like into their 40s.
The key is, don’t compare yourself to others, just be pumped that you are interested and working towards a better financial journey!
Everyone’s financial situation is different, so it is up to you to select the proper mix of resources that work best according to your needs.
Best Financial Wellness Tips:
One challenging piece to improving your financial health is mentality. You got to get yourself in the right headspace so you are determined and willing to work on your finances.
Without working on your mindset, it’s going to be difficult to stick to your financial plan.
2. Don’t worry about it later
Remove the idea that you’ll worry about it later or put it off because it’s not that interesting. Starting immediately helps correct mistakes and catch any potential financial issues before they escalate or spiral out of control.
3. Get financially organized
The best way to help improve your financial literacy and catch financial errors is to stay organized. It also helps you dispute billing errors, keep track of tax papers, investment and banking statements, receipts, etc. Find a way to stay organized via your computer or your own filing system.
4. Plan ahead and set budget goals.
Even if you don’t like budgeting or planning, it’s good to set goals for yourself. You are more likely to stick with it when you have goals to reach and can see progress. By creating a plan, you are visualizing the what, why, and how you will get there.
5. Work on that credit
Pending your current credit, you may want to find ways to fix any credit report errors or boost your score. As much as I disagree with some things with credit reporting, it still affects so much of your life. Errors can cause your score to be low and these might be simple fixes.
Others might be debt you owe, which start paying off or set up a payment plan to boost your score. There is a lot more to it than that, but boosting or maintaining your credit score is super important.
6. Start banking better
Traditional banking has taken hits as people are sick of the hidden fees, random maintenance fees, and other weird issues you may come across. Fortunately, some big banks have changed their ways and others still lag behind.
Consider looking at online banks, which offer better interest rates, no fees, and no minimum balance. These banks can help you manage your money better and deal with less banking nonsense.
7. Begin investing immediately
While you want to build a basic foundation of investing, you should begin ASAP! Time is on your side and compound interest gets to work for you. Start investing in your 401k or IRA for your retirement.
If you can’t afford to do so yet, use an app like Acorns that lets you invest in fractional shares and with spare change. It helps you set the foundation for financial wellness and gets you thinking like an investor.
As you make more money or cut expenses, start using that extra cash to build a nice investment portfolio.
8. Improve other wellness areas
Your mental and physical wellness can all impact and work with finances as well. Working on yourself, happiness, mindset, and body all complete the package and help you stay focused.
Balancing all of these aspects is not always easy, but putting any bit of effort to each will pay off huge dividends for you later.
Financial Wellness Resources
Besides the info and advice above, you may want to further your financial education and ensure you are on a better path.
After all, sometimes tips in an article are just not enough. Luckily, there are plenty of financial wellness resources out there.
You might have heard about financial wellness programs within different companies. Yes, there are companies who offer these programs internally to help support the financial wellness for their employees.
Personally, I have not worked for a company that offers this. But if your company does, it might be worth checking out if you want to learn more.
However, here are some additional places for learning about finances:
- College courses and guidance from financial aid
- Adult classes and seminars
- Special financial wellness workshops
- Reading personal finance books