Financial wellness: what it is, benefits, and 10 ways to get there
Clinically reviewed by Dr. Chris Mosunic, PhD, RD, CDCES, MBA
Learn what financial wellness is, why it's important, and how it can improve your overall wellbeing. Plus, 10 tips to guide and improve your financial wellness.
We often focus on physical health, mental clarity, or emotional stability when we think about our wellbeing. But there's another area that's also important, and that’s financial wellness. No matter the size of your savings account, the relationship you have with money can affect every facet of your life.
Financial wellness is about understanding and managing your financial situation effectively and making informed decisions that align with your personal goals and values. When you know you’re in control of your finances, you can find a sense of security and even peace.
What is financial wellness?
Financial wellness is a holistic term that encompasses your relationship with money and how it impacts your life. It's not just about how much you earn but how you manage and think about your finances. Achieving financial wellness means you're not constantly stressed about money. Instead, you have a clear understanding and a sound plan for managing it.
By understanding and striving for financial wellness, you make a commitment to your overall wellbeing that can bring a more balanced and fulfilling life.
Why is financial wellness important?
Financial wellness is important because financial stability can contribute to overall life satisfaction and security. Financial concerns don’t need to control you.
1. Handling your day-to-day finances
Effectively managing your regular expenses, such as groceries, utilities, and rent or mortgage payments, is the foundation of financial wellness. When you can comfortably cover these expenses, it can reduce daily stress and anxiety. This aspect of financial wellness ensures your basic needs are met without financial strain, allowing you to enjoy a more stable life.
2. Planning for your financial future
Looking ahead and preparing for the future can include working toward financial goals like buying a house, saving for your children’s education, or planning for retirement. When you have a plan for the future, you’ll be more resilient when faced with unexpected financial challenges.
3. Enhancing your current financial flexibility
Financial wellness also means having the flexibility to make choices that enhance your life right now. This could be the ability to travel, pursue a hobby or passion, or invest in personal development. Financial flexibility is about having the freedom to enjoy your life today, without sacrificing your future financial security.
4. Securing future financial independence
The ultimate goal of financial wellness is when you have enough resources to maintain your lifestyle in the future, especially post-retirement. Knowing you won’t be financially dependent on others in the future can provide peace of mind.
10 ways to help you attain financial wellness
Achieving financial wellness is a unique journey for everyone, but there are several steps that can guide you.
1. Understand your budget
Track your income and expenses to identify where your money goes each month. This awareness is important for making informed financial decisions and avoiding overspending.
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2. Have an “emergencies only” fund
Life can be full of surprises, and not all of them are pleasant. An emergency fund acts as a financial safety net for unexpected expenses like medical bills or car repairs. Aim to save enough to cover three to six months of living expenses.
3. Protect yourself and your belongings with insurance
Insurance can be a key tool in protecting yourself from significant financial loss. Whether it's health, car, or home insurance, ensure you have coverage to save you from financial distress if unforeseen events occur.
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4. Build savings and invest wisely
Regularly set aside money into a savings account to help you build a financial cushion. Investing your savings wisely can help your money grow over time, contributing to your long-term financial security.
5. Reduce debt
High levels of debt can be a major obstacle to your financial wellness. Pay off high-interest debts first and avoid taking on unnecessary new debts. Consider strategies like debt consolidation or refinancing for more manageable repayment terms.
6. Plan for retirement
It’s never too early to start saving for retirement. Contribute to pension savings or a retirement account to ensure you have a stable financial future.
7. Explore your beliefs around money
Your attitude about money can significantly impact your financial behavior. Reflect on how your upbringing and experiences have shaped your financial mindset, and consider whether these beliefs are helping or hindering your financial wellness.
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8. Seek support
Money matters can be complex. Financial planners, advisors, or online resources can provide valuable professional advice and guidance tailored to your specific financial situation.
9. Stay informed
Keeping up-to-date with financial news and trends can help you make better financial decisions. Educate yourself on topics like interest rates, market trends, and new financial tools and products.
10. Practice mindful spending
Be conscious of your spending habits. Ask yourself if each purchase aligns with your financial goals and values. Mindful spending can help you avoid making impulsive purchases.
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Financial wellness FAQs
What are the 3 levels of financial wellbeing?
Basic financial security: This is where your essential needs are met without financial strain. It means having enough income to cover daily expenses like housing, food, and transportation. Achieving this level of financial wellness can provide a foundation of stability and peace of mind.
Financial safety: The second level of financial wellbeing involves having safeguards in place for unexpected financial shocks. This includes having an emergency fund, insurance policies, and no high-interest debt. Reaching this level means you're likely prepared for life's uncertainties and can handle financial emergencies without derailing your long-term goals.
Financial freedom: The highest level, financial freedom, is where you have enough wealth to live comfortably and make choices that aren’t solely based on financial necessity. This might mean having the ability to retire early, travel, or engage in philanthropy. Achieving this level of financial wellbeing can offer enormous peace of mind and a sense of accomplishment.
How do you maintain financial wellness?
Regular budget reviews: Periodically assess your budget to ensure it aligns with your current financial situation and goals.
Consistent saving habits: Regularly set aside a portion of your income into savings or investment accounts.
Stay informed and adapt: Keep up-to-date with financial news and be ready to adjust your strategies in response to economic changes or personal life events.
Avoid unnecessary debt: Be cautious about taking on new debts, and prioritize paying off existing high-interest ones.
Continuous learning: Learn about financial management, investment opportunities, and retirement planning to make informed decisions.
Regular financial health checkups: Just like a regular health checkup, review your financial situation every now and then to ensure you’re on track to meet your goals.
What is the difference between financial wellbeing and financial wellness?
Financial wellbeing typically refers to the emotional aspect of finance, like how your financial situation makes you feel. Financial wellness, while similar, is often used to describe both the emotional and the practical aspects of finance. It includes effective management of your finances such as budgeting, saving, investing, and planning for the future, and how these actions make you feel.
How do I start being financially stable?
Create a realistic budget: Start by understanding your income and expenses. Track your spending and set a budget that allows you to live within your means.
Prioritize savings: Set aside a small percentage of your income into a savings account, gradually increasing it over time.
Educate yourself about personal finance: Learn about different aspects of personal finance, including budgeting, saving, investing, and debt management.
Reduce and manage debt: Aim to pay off high-interest debts first and avoid accruing new debt. Consider strategies like debt consolidation for more manageable repayments.
Build an emergency fund: Aim to have savings that can cover at least three to six months of living expenses.
Set short and long-term financial goals: Having clear goals can motivate you to stay on track with your financial plan.
Seek professional advice if needed: Consult a financial advisor for personalized advice tailored to your circumstances.
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