What Is the Meaning of Financial Wellness?
- Financial wellness makes it easier to plan for major milestones and prepare for emergencies. Keep reading to discover the meaning of financial wellness.
Whether you're developing your first budget or working on paying off debt, your ultimate goal should be a state of financial wellness. This describes the ability to pay your bills, weather financial emergencies and plan for the future. Keep reading to learn more about the meaning of financial wellness and find out how you can achieve it.
What Is the Meaning of Financial Wellness?
Financial wellness is another term for good financial health. Depending on your situation, it may entail paying off your consumer debt, saving for a down payment on a condo or building an emergency fund. No matter where you are now, achieving financial wellness can help you avoid the stress associated with money problems. You'll also be able to set long-term financial goals, giving you extra peace of mind at any stage of life.
What Does Financial Wellness Look Like?
When you achieve financial wellness, you have control over your present and your future. This state of being is characterized by four elements:
- Control over your daily finances: You can handle all your current financial obligations, such as rent, utilities and monthly credit card payments.
- Ability to handle financial emergencies: If an emergency arises, such as a mechanical problem with your car or an illness serious enough to go to the doctor, you have enough money saved to pay the bill.
- Financial freedom: You have the freedom to enjoy life instead of stressing about money or worrying that you won't be able to meet your goals if you go out to dinner or take a vacation.
- Ability to reach long-term goals: You're in such good financial shape that you can set and achieve long-term goals, such as maxing out your 401(k) contributions each year or contributing a certain amount of money to your grandchild's college savings by the time they graduate from high school.
Financial Wellness Meaning vs. Financial Literacy
You're financially literate when you have the knowledge and skills needed to make wise financial decisions. It can also be defined as having the ability to achieve your goals without a lack of money getting in the way. This is different from financial wellness, which refers to the freedom and sense of security associated with having control of your finances. Although the terms have different meanings, you need financial literacy if you want to achieve financial wellness.
Why Is Financial Wellness Important?
Financial wellness is important because it can help you reach your goals without having to stress about late bills, mountains of debt and other financial crises. When you achieve financial wellness, you understand how to live within your means and avoid unnecessary debt. You also develop the ability to set long-term goals and save the money you need to achieve them. As a result, you don't have to worry constantly about not being able to pay your bills or spending the rest of your life paying back debt instead of doing the things you love.
Types of Financial Wellness
Financial wellness is often seen as a personal matter, but many employers are now offering resources to help employees improve their financial situations. Therefore, financial wellness can be classified as either personal financial wellness or employee financial wellness.
Personal Financial Wellness
Personal finance is extremely personal. What works for one person may not work for you based on your income, debt load and financial goals. No matter how you define financial wellness, it's clear that many people have a long way to go before they're financially stable. In July 2022, Money.com reported that 40% of Americans were having trouble paying their bills. Earlier in the year, CNBC reported that 56% of Americans didn't have enough savings to cover a $1,000 emergency.
Financial difficulties make it difficult to plan for the future, so it's important to prioritize financial wellness and take steps to improve your situation. If you're not sure where to begin, make an appointment with a financial advisor.
Employee Financial Wellness
In 2021, 46% of U.S. employers offered some type of financial wellness program, an increase from 40% during the previous year. Although some employers feel responsible for employees' well-being, many companies offer financial wellness programs to boost their bottom lines. People experiencing financial stress may be unable to focus on their work, reducing productivity. For some employees, money-related stress is so bad that it causes them to come to work late or miss work entirely.
If your employer offers a financial wellness program, contact your HR representative to find out how to take advantage of this free benefit.
Basics Steps for Achieving Financial Wellness
The first step to achieving financial wellness is to set short-term and long-term goals. Depending on your age and current financial circumstances, you may want to save for retirement, move to a senior living community or increase your emergency savings. Once you have a goal in mind, follow these steps:
- Create a budget. The first step is to create a budget, which lists your monthly income and expenses. When you make your first budget, don't forget to write down every expense you have, such as pet care, groceries, eating out, car maintenance, health insurance and clothing. If your budget shows that you spend more than you make in a month, you'll have to find a way to increase your income or reduce your expenses.
- Start an emergency fund. It's important to have money set aside for emergencies so that you don't have to go without necessities or take on new debt to pay your bills. In most cases, you should have at least 6 months' worth of expenses in your savings account. You should have even more if you work in a volatile industry or depend on commissions.
- Pay off debt. If you have debt, you have to pay your creditors every month, leaving less of your income available for other things. Paying off credit cards and loans can give you a little more wiggle room in your budget.
- Invest in yourself. There are many ways to spend money, but few of them are as rewarding as investing in your future. Stocks, bonds and mutual funds are just a few of the tools you can use to grow your nest egg and make sure you have enough money to retire comfortably. If you're not familiar with investing, meet with a fiduciary financial advisor, which is someone who's legally obligated to work in your best interests when providing investment advice.
- Improve your financial literacy. Read as much as you can about taxes, mortgages, investments and other financial topics to ensure you have the knowledge you need to make wise decisions.
- Create a long-term plan. Once you have a little breathing room, it's time to figure out your long-term financial goals. You may want to save enough to retire early, do a major home renovation or buy a vacation home in one of your favorite cities. It doesn't matter what your goals are as long as you consistently take steps to achieve them.