financial wellness

What is financial wellness?

Do you ever feel like you’re just treading water—constantly working hard but not getting anywhere? You’re not alone. Many people think that if they simply work harder, they’ll eventually be able to afford the lifestyle they want. But “eventually” never really comes. There’s always a new goal, the next level, and the chase doesn’t end. 

What if there was another way? There is. It’s called financial wellness, and it’s a game-changer. 

Yes, having money is vital to financial wellness, but it’s also about much more. Financial health means being in control of your finances, making sound decisions with your money, and feeling confident in your ability to achieve your financial goals. It’s about being financially fit and taking charge of your future.

Believe it or not, anyone can achieve financial wellness, no matter how much or how little money they have.

Unfortunately, many people don’t think about financial wellness until they’re in a tough spot. And even then, it’s not always easy to know how to get back on track. If you’re feeling lost, don’t worry—we can help.

We’ll break down everything you need to know about financial wellness. 

What does financial wellness mean to you?

There isn’t a one-size-fits-all definition of financial wellness. What matters most is how you feel about your individual financial situation. 

Do you feel in control of your finances, or are you constantly worrying about money? Are you confident that you’re on track to achieve your financial goals, or do you feel like you’re just getting by?

Your financial wellness is often a state of mind as much as it is the state of your bank account; it’s about how you feel about your money and your ability to manage it effectively.

Financial wellness is essential because it directly impacts your quality of life. A 2019 survey revealed that financial stress is the number one cause of millennial anxiety.

  • 82% of Generation Z and 81% of Millennial consumers surveyed said finances were a significant source of their everyday worries
  • 61% of millennial women were very stressed about finance, compared to 47% of millennial men
  • 73% of people surveyed consider money to be one of their top stressors

Studies have also shown that financial stress is linked to a host of physical health challenges, including headaches, heart disease, and high blood pressure. 

In other words, financial wellness is key to both your mental and physical well-being.

Some other examples of financial wellness are:

  • Feeling confident about your money management skills
  • Having an emergency fund of 3-6 months of expenses
  • Knowing how to navigate or where to seek help in various financial situations
  • Consistently saving and investing for the future
  • Spending less than you earn
  • Having a moderate to high credit score, and knowing how to improve or preserve your score
  • Generally feeling good about your financial situation and your ability to manage money
  • Understanding various financial terms and opportunities such as good debt vs. bad debt
  • Having a written financial plan
  • Feeling secure in your financial future

What makes up financial wellness?

Although financial wellness means different things to different people, some key components make up this concept. These components are popularly referred to as “the five pillars” of financial wellness. The pillars below can help you categorize your finances and create an overall strategy to keep yourself financially stable.

Manage money

Managing your finances is all about controlling spending. To manage your money successfully, several factors come into play:

  • Spend less than you earn – This seems like common sense, but it’s often easier said than done. Most people tend to overspend and rack up debt, which quickly spirals out of control. But with a little bit of financial discipline, you can avoid this trap. Start by tracking your spending for a month to understand where your money is going. Once you know where your money is going, proceed to make changes and cut back on unnecessary expenses.
  • Saving – Another critical element of managing money is saving. You should always have cash stashed away for unexpected expenses. An emergency fund is essential in helping you cover large costs that come up—like vet bills, new tires, or last-minute girls’ trips— without putting a dent in your regular budget.
  • Paying off debt – Debt can be a huge financial burden, high interest rates can make it difficult to get ahead. To be financially well, you may have to make a few sacrifices to pay off all your debt. By creating a debt-repayment plan and sticking to it, you can get rid of debt for good!

Earn money

No matter how great you are at money management, it’s impossible to get ahead if you’re not earning enough cash. You need to bring in enough money to cover your basic needs and reach your financial goals. 

There are two ways to earn money:

  • Passive income – income that you earn without actively working for it. Interest from investments, rental properties, and royalties are a few examples of passive income.
  • Active income – money that you make from working a job. Your salary, tips, and commissions all fall into this category.

Grow your money

Once you’ve gotten a handle on your finances and are earning enough money, it’s time to start thinking about how you can multiply that money. Investing can be a great way to grow your money. 

There are various types of investments, but here are some common ones:

  • Stocks
  • Bonds
  • Mutual funds
  • Real estate
  • Precious metals

Borrow money

Borrowing money—think: taking out a loan—can be a great financial tool, if used correctly. 

By using borrowed money, you can purchase a home, start a business, or even consolidate debt. But it’s important to remember that borrowing money also comes with risks. 

You need to be sure you can make the payments on time and in full. If not, you could damage your credit score or, even worse, face foreclosure and bankruptcy.

To borrow effectively, it’s important to avoid overspending, and have a good payment history.

Protect your money

Nobody likes to imagine worst-case scenarios, but it’s essential to have a financial safety net in place should something go wrong. Unexpected medical bills, job loss, and natural disasters can all put a financial strain on families. 

Protect your hard-earned cash with insurance. 

With insurance, you can protect yourself against life’s uncertainties and financial ruin. While it may seem counterintuitive to pay for something you never hope to use, it serves as protection for when unexpected emergencies do come up. Not only will insurance help cover the unplanned costs, but it also provides peace of mind. You can rest assured knowing something out of your control can’t obliterate your savings. 

There are a few different types of insurance. Here are some of the most common ones:

  • Health insurance
  • Life insurance
  • Disability insurance
  • Homeowners/renters insurance
  • Auto insurance

Ready to start your financial wellness journey? 

The Financial Wellness Roadmap: 5 Steps to Achieving Financial Wellness

1. Know where you stand

The path to financial wellness begins with a clear understanding of your current situation. So give yourself a financial audit and find out exactly where you stand:

  • List all of your sources of income (including your paycheck, investments, and any other money coming in)
  • Tally up all your debts (including credit cards, loans, and any other money you owe)
  • Calculate your net worth (total assets – total liabilities = net worth)

2. Make a plan

Once you know where you stand, it’s time to make a plan. This financial wellness plan will be your road map to financial success:

  • Set financial goals—both short-term and long-term
  • Create a spending plan—so you can live within your means and reach your financial goals

3. Get your spending under control

Mindfulness is a significant aspect of wellness. Is your money going where you think it’s going? You can’t save money if you’re not in control of your spending. Start by accessing your spending habits and see where you can cut back. Then, put your savings into a separate account, so you’re not tempted to spend them.

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4. Automate your savings

Many financial institutions offer programs that allow you to automatically transfer money from your checking account into your savings account. Setting up automatic transfer is like autopilot mode—you’ll grow your savings without any extra effort. 

5. Improve your credit score

Your credit score is like your financial report card. A poor credit score can hold you back financially, even if you have cultivated healthy spending skills or saved like crazy.  

On the other hand, a great credit score can open up opportunities for you to get lower interest rates on loans and lines of credit.

Here’s how you can improve your credit score:

  • Pay your bills on time
  • Keep your credit card balances low
  • Monitor your credit report for errors
  • Use a secured credit card
  • Ask for higher credit limits

Benefits of Financial Wellness

The research is in, and the benefits are clear: financial wellness offers real payoffs for your physical, mental, and emotional health.

Here are some of the ways financial wellness can improve your life:

  • Improved mental health, physical health, and relationships
  • Reduced financial stress
  • More job satisfaction and productivity
  • Increased financial security and peace of mind
  • Ability to make informed financial decisions
  • Improved ability to weather economic shocks

While financial wellness may seem like a daunting task, it’s important to remember that it is a journey, not a destination. And like any endeavor, the first step is to simply begin.

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