Financial wellness is not a term you hear every day. Popular among those that practice it, financial wellness describes how well you manage financial expenses, emergencies and economic goals. In a nutshell, financial wellness is all about your relationship with money, whether you’re a student, civil worker, or young, successful entrepreneur.
In all relationships, security takes pole position amongst our expectations. Many people feel deeply secure in both good and bad times if their partner is close by and responsive. (source: PsychologyToday)
The same happens with money; this makes financial security the primary goal of financial wellness, alongside good mental health and personal relations. In this article, we tackle the meaning of financial wellness and explore some of its benefits. And in between, you will learn simple tricks that will kickstart your journey of financial wellness.
What is financial wellness?
The situation on financial wellness: meet Greg.
Let’s begin with a simple case study. Greg is a 25-year-old lawyer. He graduated with decent grades in the upper slot of his class at a state university. One broody evening on his commute back home, he sat at his steering wheel in slow-moving traffic as he thought about his life.
He thought about his new job and how his monthly salary comes to the rescue every 30 days to wipe clean his unpaid bills. Sure, he settles most of them a week or so after they are due, but that’s okay.
He still has his job.
He has a couple of hundred dollars in credit debt but he doesn’t sweat it. His salary is assured at month’s end. He even does his own taxes every quarter.
How blessed Greg felt!
Greg’s story, though cliché, sheds light on many people’s financial state. When you look closely, there are many loops in Greg’s financial management that many of us see in our own lives.
Like Greg, we may not have an emergency fund, budget for our money, reliable retirement plan, or even a makeshift backup plan, for that matter.
When it comes to tax matters, 44 % of people aged 22-26 do their own taxes (source: Bank of America).
A recent study shows that almost a fifth of adults in America have $2,500 or more in credit card debt each month (source: National Foundation for Credit Counseling). The same research tells us that 28% of U.S. adults admit to not paying their bills on time.
These and many more statistics show an impending crisis in people’s ability to manage their personal finances.
Are you searching for ways to manage your money better?
Below we shall explore why financial wellness is so essential and how you can achieve it in today’s fast-paced world.
Why financial wellness is important
1. It helps you budget.
“Budget” is a word that is thrown around a lot. In essence, a budget is a plan for your future expenses and income. It’s basically a guide for where you should spend your money. Now, the last thing you need is for someone to tell you where to spend your hard-earned cash. But think of a budget as a second voice that wishes the best for your financial prosperity.
It is a well-wisher that wants you to spend money on the right things while never falling short whenever you have a crisis.When you budget, you learn about your spending behavior, particularly the things that take most of your money.
When you draw a budget, estimate your expenses and any income you’ll get over a specific period, i.e., one week, month, or year. Remember to monitor your budget at the end of said period.
As you revisit your budget, you’ll notice unnecessary expenses that you may reduce cut out completely. For example, if you watch movies once or twice in three months, then you might want to question the purpose of your annual Netflix subscription.
2. Financial wellness means better retirement.
At some point, most of us will hang our boots and retire from our daily enterprise. When this time comes, we need to have a cushion to fall back on as we watch the sunset in our very lives. This is precisely what retirement plans are for – they help you live a debt-free life in the years when you cannot work anymore.
When setting up a retirement plan, one should note their time horizon, future expenses, and required tax returns. Are you left with five years to retire? Do you still have a mortgage to pay? In this light, young investors should take more risk with their investments, whereas the older investors nearing retirement need to be more laidback in their options.
Another critical takeaway about retirement is that you should start early to get more return on your savings through compounding. Interestingly, these savings don’t live to see their intended use.
Recent data tells us that more than half of millennial and gen x workers admit that they are most likely to spend their retirement money on something else, such as medical bills. So, what must be done to ensure that your retirement plan remains stable even in uncertain times? The answer: an emergency fund. (source: PwC)
3. You can meet emergencies
In March this year, all hell broke loose with the coronavirus. COVID-19 was a disaster of epic proportions and an instructor in the masterclass of emergency. It taught us to be ready. It taught us that anytime, anywhere, a crisis can ensue. This means that we must all be ready for unforeseen problems that will require us to spend more money than you had planned.
Like Greg, 63% of Americans have been living paycheck to paycheck since the pandemic (source: CNBC). During this crisis, there were many waves of panic fueled by the threat of an unknown virus and the impending financial doom it suggested.
The story of COVID-19 implores us to equip ourselves to deal with any financial shocks by having extra cash to solve emergencies. This way, we can quickly adjust our overall life plans and adapt as our emergency fund takes care of the situation.
4. Financial wellness controls debt
Financial wellness requires that we pay off our debts at the right time to avoid bankruptcy and keep a good credit score. It goes without saying that one should minimize unnecessary debts.
You see, debt can come in in many forms: mortgages, borrowings and credit cards. Eliminating your date might not happen overnight, but it can be as simple as committing to pay back a friend every week for the next three months.
Organizations like the American Consumer Credit Counseling (ACCC) have effective debt relief and debt elimination programs for anybody scourged with debt. On this note, one should be aware of illegal debt elimination schemes. These are run by con artists who ask users to pay an upfront fee before paying off the user’s debts.
You can also choose to negotiate a lower interest rate with your creditors since high-interest rates keep you trapped in debt for more extended periods.So, we’ve seen the value of financial wellness and how you can make it work.
But remember, financial wellness is not just about knowing; it’s about putting your knowledge into positive habits.
About the Author:
Jasmeet is a founder of Lessons at Startup – A blog where he shares entrepreneurial stories. He specialises in Digital Marketing and Content Writing. He is addicted to Google News, Netflix, Good Coffee and Quora ☺.
Hello, I’m Thuy of honeybunnytwee. I write a Wellness Wednesday guest bloggers series. Send an article or link to a blog post about health and wellness, self-care, fitness, or mental health at [email protected]. Upon review, you’ll have a chance to be featured! I’m always looking for more Wellness Wednesday submissions.