Wellness is a term that is entering more and more spheres of American society. The core of wellness is the adoption of behaviors that enhance one’s quality of life, such as increasing physical activity and improving one’s diet.
These activities can also enhance your financial life, which is “financial wellness.” To achieve economic security and independence, this idea proposes modifying one’s spending patterns and cultivating more efficient ways of handling money.
Why Is Financial well-being important?
Being financially wellness is a relative indicator of one’s skill in handling money. An individual’s quality of life can be enhanced by establishing and maintaining healthy financial habits and establishing and working toward specific goals.
Drew Pratt, a chartered financial analyst (CFA) and VP of investment advice at Rebalance states, “Financial wellness is the ability of people to lead a successful financial life.”
Adam Scherer, president of Greenbelt Financial and a certified financial planner (CFP), claims that being financially healthy affects many of your daily operations. Retirement and other large-scale, long-term endeavors are likewise well-covered.
The hierarchy of needs is something that Scherer compares it to. “There is a specific order to one’s monetary requirements.”
Financial wellness entails knowing what you need and making preparations, such as maintaining a budget, accumulating money, planning for your estate, and preparing for retirement.
A thorough financial planning strategy requires “these sorts of core goals,” explains Scherer.
Understanding Financial Wellness
Financial wellness encompasses more than just the ability to pay bills on time or having a hefty savings account. It’s about achieving a state of equilibrium where financial stress is minimized, and you have the freedom to pursue your goals and dreams without the constant burden of money woes. This state of balance is achieved through a combination of prudent financial management, a healthy mindset towards money, and the cultivation of habits that promote long-term financial stability.
The Four Components of Structural Soundness
Although there are many ways to conceptualize financial well-being, we’ll tackle it here using four categories: present financial freedom, future financial freedom, long-term finances, and short-term finances.
1. Handling immediate financial matters
This entails creating a budget, adhering to it, and attempting to raise your income gradually.
“Everyone ought to have a budget, comprehend the basic principles of their own household income statement, and make an effort to live within their means,” states Pratt.
Conforming with a financial specialist is one of the best ways to get your short-term finances in order.
2. Taking care of long-term money
Ensuring you have space for investments and savings for long-term objectives is crucial to managing your short-term finances. Increasing your financial well-being now will help you achieve your long-term goals, such as constructing a retirement fund and purchasing a house.
As part of the process of managing their long-term finances, clients are advised by Wells Fargo Wealth & Investment Management’s head of advice and planning, Michael Liersch, to meet with a trusted collaborator, such as a financial advisor, spouse or child, and honestly review their assets and liabilities.
3. Increasing current financial independence
Gaining control of one’s short-term finances is intended to provide oneself with current financial independence. Financial literacy is a valuable tool for achieving this, but feeling in control of your finances is also essential for wellness.
“It’s about putting numbers next to your habits and making adjustments so that the things you’re spending money on reflect your financial wellness and goals, ” says Scherer.
4. Reaching economic independence in the future
This indicates that you are using strategies to reach your long-term financial objectives. To become financially independent in the future, retirement planning is essential.
“There are a few tried-and-true methods for generating income and reaching financial stability. Simply put, multi-year commitments made out of habit build the road, according to Liersch.
The Importance of Financial Wellness
Financial wellness impacts every aspect of our lives. From our physical and mental well-being to our relationships and overall sense of satisfaction, the state of our finances influences how we navigate the world. Here’s why nurturing financial wellness is crucial:
- Reduced Stress: Financial worries are a leading cause of stress for many individuals. By achieving financial wellness, you can alleviate this stress and enjoy a greater sense of peace and well-being.
- Improved Health: Studies have shown a strong correlation between financial wellness and physical health. When you’re not constantly worried about money, you’re better able to focus on maintaining a healthy lifestyle, leading to improved overall health outcomes.
- Enhanced Relationships: Money matters often strain relationships, whether it’s with partners, family members, or friends. Achieving financial wellness allows for healthier communication about money and fosters stronger, more supportive relationships.
- Empowerment and Freedom: Financial wellness empowers you to make choices that align with your values and aspirations. Whether it’s pursuing further education, starting a business, or traveling the world, financial stability provides the freedom to follow your passions.
Cultivating Financial Wellness
Achieving financial wellness is a journey that requires commitment, discipline, and ongoing effort. Here are some key steps to help you nurture your financial well-being:
- Budgeting: Create a budget that aligns with your financial goals and helps you track your spending. A budget provides clarity on where your money is going and allows you to make informed decisions about your finances.
- Saving and Investing: Prioritize saving for both short-term goals and long-term financial security. Set up automatic transfers to your savings account and explore investment opportunities that align with your risk tolerance and objectives.
- Debt Management: Develop a plan to pay off any existing debt and avoid accumulating unnecessary debt in the future. Utilize strategies such as the debt snowball or debt avalanche method to systematically tackle your debt.
- Financial Education: Continuously educate yourself about personal finance topics, including budgeting, investing, and retirement planning. Empowering yourself with knowledge enables you to make informed financial decisions that support your long-term goals.
- Mindfulness and Mindset Shift: Cultivate a healthy mindset towards money by practicing gratitude, reframing negative beliefs about wealth, and avoiding comparison with others. Mindfulness practices can help you stay present and mindful of your financial decisions.
- Seek Professional Guidance: Consider consulting with a financial advisor or planner to receive personalized guidance tailored to your unique financial situation and goals. A professional can offer valuable insights and strategies to help you achieve financial wellness.
Financial Literacy vs. Financial Wellness
Financial wellness and financial literacy are strongly associated. While one concept influences the other, they are not interchangeable.
Financial literacy is the knowledge of the ideas and resources available for money management. Financial health is the act of improving your financial situation.
According to Scherer, “financial literacy is more of the fundamental knowledge about what different types of investments are and how they work.”
Financial literacy is understood by understanding concepts like taxation, budgeting, investing, and saving. If you lack these abilities, learn about and investigate personal finance principles.
In Scherer’s opinion, financial wellness includes developing the fundamentals of financial literacy. However, he notes that there is a distinction in that emotional well-being wellness is also covered by financial wellness
Being financially literate is not as comprehensive as financial well-being. It includes more than just a person’s understanding of finance. It encompasses every emotion a person has about money.
The Best Ways to Manage Your Finances
Learning to create a budget, manage debt, save adequate money, make wise investments, and use insurance is part of practicing financial wellness. Achieving their current and future goals entails applying these abilities to your daily activities.
According to Scherer, “extra earnings do not always translate into better lives for people beyond a certain point.” “Reflect on your finances: Are you living up to your values?”
It takes more than just following the text to apply financial literacy concepts. The idea is to figure out how you want to use these ideas to give yourself and your family the kind of life you desire.
One financial talent is budgeting, for instance. A step toward financial wellness is creating a budget so that you feel in charge of your present and future economic situation.
Like other tools, debt is something everyone who understands finance should be able to use. However, if you can use debt—like mortgages and auto loans—to achieve your objectives, you’re well on your way to financial wellness.
This also applies to investing and saving. Financial literacy includes understanding how to invest and save. Financial well-being is investing in and saving for your emotional health.
Ways to Boost Your Financial Wellness
Enhancing one’s financial literacy is the first step toward improving one’s financial wellness, and there are many ways to do so. From this vantage point, the person can discover how to apply financial literacy concepts to accomplish their objectives more effectively.
“People who have achieved financial wellness—specifically, feel confident about their retirement plan—tend to have their ‘long-game hat on,'” according to Liesch, “while many have a tendency to view their situations through ‘narrow framing.'”
In light of this, the following are the areas that a person should concentrate on to achieve financial wellness:
- I am making a financial plan.
- I am building an emergency savings account.
- They are safeguarding their possessions.
- They are lowering or getting rid of debt.
- We are investing and saving.
- We are making long-term plans for things like retirement.
There are numerous ways to become more financially well-off. Some might decide to consult a financial counselor. Books and articles might have the answers for others. Some could even look for further outside assistance.
According to Scherer, “I think that seeing someone to discuss that—like a psychologist or LCSW—can really help for people who have really deeply ingrained negative thoughts or challenges around money.”
Regardless of the exact method, achieving financial wellness almost always necessitates having an eye toward the
