Financial wellness is a process of changing negative feelings and behaviors into positive ones in order to gain confidence and control over finances.
Are you earning a decent income but somehow still are living from paycheck to paycheck and never seem to have enough for your big goals?
Maybe you are living in a financial denial to avoid being uncomfortable with the reality of your finances.
You know you should use your money more wisely but you also like to maintain a certain lifestyle, and the two just don’t match.
Money is one of the biggest stressors in life. It brings more stress than job, health and relationships together. And research even shows that, the more money a person has the more stress it brings.
The solution to this money related stress is to practice financial wellness.
You don’t have to be rich to practice financial wellness. In fact earning more money doesn’t guarantee financial wellness.
You can’t either reach financial wellness and be done with it. Financial wellness is not a destination, it’s a practice, a habit and a way of living.
Practicing financial wellness means having a healthy relationship with money. It means being in control and using your money in a way that makes you feel secure and confident.
Don’t Wait For The Crisis
There is nothing you can do to change the current situation, but you can do everything to change the future ones. But if you wait too long you only risk getting into even worse situation.
When it comes to money, the wisest thing to do is to always prepare for the worst.
That is the essence of financial wellness.
Organizing and maintaining your finances in a way that they will support you in the worst case scenario.
4 PILLARS OF FINANCIAL WELLNESS
Financial education is lacking on a global scale. Majority of people are sadly financially uneducated. If you also had bad or non financial education, then you must do something about it.
Being financially literate is the biggest part of financial wellness. The more you know, the more smart and confident you will be with money. Start by learning and understanding basic finance terms. Then move onto reading books about personal finances, money management and big finance websites.
Budget or cash flow is a concept of managing monthly expenses and preparing for future events to avoid debt or bankruptcy.
It’s hard to make good financial decisions without knowing how much money you have available to spend and how much you need for necessities.
To keep a budget you don’t need any special knowledge, if you can add and subtract you can keep a budget. It doesn’t take up much of your time, and in turn it gives you awareness of where your money goes in order to have a better control over it.
All you need is a budget spreadsheet template or a budgeting app to track your expenses.
But before you start tracking, you should make a plan for where your money will go.
Divide your monthly income across three categories in this order needs, savings and wants.
Needs are housing, bills, groceries, debt, essential clothing, transportation. Everything beyond this are wants. And looking for an excuse to sneak wants under needs is only doing yourself disservice.
For example, the internet is a need but cable or streaming services are wants. Learn to actively separate wants from need and you will become more aware of your spending habits.
To truly experience financial wellness you must put saving before wants. Saving should not be optional. After calculating the amount needed to cover all your needs, the majority of what’s left should go into saving.
How much will go into each category depends on your specific situation. Forget 50/30/20 and other similar rules. They don’t work. Rather focus on spending mindfully and not emotionally.
Learn more about the value of keeping a budget from investopedia.
3. PAYING OFF DEBT / INVESTING
Paying off debt should be your number one priority. Having a debt is seriously disturbing your financial wellness. That’s why it’s in the needs budget category. After you pay off your debt or if you have no debt you should invest a small portion of your monthly income. And slowly build your portfolio so that one day you can live off or aid your income with interests.
Ideally is to divide savings into three categories.
This is the first category you should fill up. It is your lifeboat in case of a storm. Life is too unpredictable and having an emergency fund will allow you to sleep calm. Some say you should have three months worth of expenses in the emergency fund. But with financial wellness in mind, you should put in an emergency fund as much as you need to feel safe.
The sooner you put your retirement plan in place the better. The key is to start early so that it builds up in time for retirement. You may think retirement is long away, but the thing is the longer you finance it you’ll be better off. And knowing you are funding your future will greatly improve your financial wellness.
LARGE PURCHASES FUND
This is non-essential but strongly suggested. There are two types of people. Those that make a large purchase and then are paying it off, often with interests. And then there are those that save up front and pay for their large purchase in full. Avoiding getting into debt by saving for future large purchases will make you feel in control and satisfied with your financial abilities.
Before making any big decision it’s good to consult a financial advisor. In case you can’t afford one I would suggest you take it to the reddit. I found r/personalfinance to be a very helpful and informative community.
Financial Wellness Best Practices
- educate yourself
- make a plan for your money
- pay bills on time
- pay credit card balance in full every month
- pay off debt first
- save for future
- be aware of your spending habits
- live below your means
- automate bills and savings
Financial stress can lead to feelings of guilt, low self-esteem, broken relationships and impaired health.
Financial wellness is a practice worth pursuing. With time your confidence will grow and your relationship with money will become positive. You will learn how to be in control of your finances so that you can reach your financial goals, feel safe in the present and optimistic about the future.