"Financial wellness" might be perceived as a cliche but it’s, surprisingly, far from being one. In fact, financial wellness is a crucial notion that many people overlook. According to Mckinsey’s ‘Future of Wellness 2021” study, people didn’t identify finances to be a category part of wellness. Instead, they found consumers view wellness across six categories: health, fitness, nutrition, appearance, sleep, mindfulness.
Simply put, financial wellness is a state of being in which you can meet current and future financial obligations, feel secure in your financial future, and make choices that let you enjoy life.
Experts say it's a measure of wealth. describing it as a smart move for those concerned about stability — their current well-being and the upcoming comfort it might bring.
“Financial health means you have the ability to reach your goals, take advantage of opportunities and give you the flexibility to pursue your dreams. The only way to achieve financial health is through financial literacy. Being financially literate means you understand the importance of saving early and often to reach short- and long-term goals (like retirement).” - Liz Frazer from Forbes Magazine, Author & FinLit Advocate.
To help you become more financially savvy, you need to understand the four pillars of financial wellness:
To spend wisely, you need a budget. You can create a clear budget to alter your spending habits with a little time and effort. Budgeting advice is readily available online, or you may look back at our Budget Challenge from earlier this year. You can also download tools and apps to help you automate the budgeting process. Here are some of them that we think might come in handy:
Goodbudget, for hands-on envelope budgeting
YNAB, for hands-on zero-based budgeting
EveryDollar, for simpler zero-based budgeting
Personal Capital, for tracking wealth and spending
PocketGuard, for a simplified budgeting snapshot
Honeydue, for budgeting with a partner
Fudget, for budgeting without syncing accounts
You should try to stick to your budget, regardless of the method you’re using. That involves adhering to good spending habits in order to stay on (or, better yet, under) budget. When you do spend, try to use a credit card with a low-interest rate.
Ideally, everyone should be putting some money towards their savings each month, but life's realities sometimes make this hard. In general, and as suggested by The Balance, you should try to save at least 20% of your monthly earnings. This comes from the 50/30/20 rule, which is a general rule for allocating your budget: 50 percent to "needs," 30% to "wants," and 20% to your financial objectives. These funds should be considered untouchable once they’ve hit your savings account – that means no spontaneous purchases (we’ve all been there). Instead, they should be utilized to start saving for an emergency fund and larger savings account for long-term goals. Having these funds on hand will prevent you from putting these costs on your credit cards and putting you in debt.
Ideally, debt payments shouldn't exceed 15% of your income (not including mortgage and transportation loans). Keep in mind that larger debt payments may mean that your debt load is no longer manageable and, as a result, may be unhealthy. While credit cards have benefits such as improving your credit score or providing rewards for on-time payments, they can also be risky. Make sure you’re aware of your payment due dates and interest rates, so you can make more informed spending and repayment decisions.
In five years, where do you see yourself financially? Where do you wish to be? Those are important things to ask yourself as you plan for a secure financial future. Take some time to consider how you want to be living in the future: will you require retirement funds? Do you wish to be able to purchase a home or a rental property? Will you have to assist a child with college expenses? These questions are relevant to your objectives and what you'll need to modify to achieve them. You can begin to re-prioritize your budget in ways that make sense for your goals by focusing on long-term goals rather than monthly spending. Mint, Plaine, HoneyDue, and Pocket Guard have some awesome tools for you to get on that saving journey.
The first step in improving your financial well-being is identifying your existing financial health in each of these categories. Here are a few suggestions to help you become a pro at managing your finances.
Create a budget for yourself
Knowing your income, costs, and disposable income, once your daily expenses are paid, will give you confidence in your decisions. If your partner or spouse is normally in charge of finances, make sure you discuss the budget with them so that you both have a clear understanding of your finances.
Stop comparing incomes
According to Goalcast, comparing ourselves to our friends or peers lowers our life’s pleasure. Keep in mind that we all have various priorities and most importantly, come from all types of different backgrounds – it can be like comparing apples to oranges. Instead, reframe the financial success of others and use it as motivation. Not to copy or compete with them, but to take what lessons you can learn from their journeys and apply them to your life.
Look for the bright side
According to neuroscience research, practicing thankfulness on a regular basis can assist to remodel your brain structure. Gratitude increases the production of natural "antidepressants" like serotonin and dopamine, which make you feel happy and fulfilled. Every day, write down three things you're grateful for.
Change can be hard, but change is beneficial. It's natural to be apprehensive about change. Everyone would do it if it was simple. Continually improving your well-being requires change. You have to be willing to make an honest assessment of where you stand now in order to set yourself up for a better financial future. Determine your starting point and potential growth opportunities. Your financial well-being is dependent on your ability to make the required behavioral changes to achieve financial stability and continue to improve.