What Is Financial Wellness and How to Improve It

What Is Financial Wellness and How to Improve It

Aug 20th 2021

We appreciate a holistic approach to wellness, one that includes physical and emotional parts of our lives. We’re of the opinion that when you’re missing one key element of wellbeing, whether it’s sexual wellness, mental health or something else, it’s really hard to live a happy and fulfilling life.

Enter financial wellness. Financial wellness, or financial wellbeing, is a big part of our overall quality of life. And while we’ll try to address salary negotiations for increased income in a future post, for now, just know that we acknowledge financial privilege plays a big part in your happiness.

No matter what position you find yourself in, there are key elements to financial wellness you can improve and take steps forward in. Managing your money, or even just learning how to do so in the future, is a big part of success. And it isn’t taught in school.

As part of our ongoing financial and investing series, let’s talk about the basics of financial wellbeing everybody should know.

What is Financial Wellness?

According to United Healthcare, financial wellness is “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life.”

Consumer Finance offers a slightly different definition, calling it “how much your financial situation and money choices provide you with security and freedom of choice.”

What both definitions share in common is they highlight our freedom of choice. In financial wellness, we have the ability to decide where our money is going, we make smart choices, and there is enough to cover our needs and make life comfortable.

When we’re financially distressed, the opposite is true. We may be making bad choices, or we might find we’re not making as much money as we need to cover the bills. Financial distress also occurs when there’s conflict over money, like siblings who can’t decide how to execute a will, or when a family member asks another family member to help them financially, causing strain in the relationship. In short, financial distress means having money problems of any kind, whether they relate to credit score, income, student loans, or any other financial goals.

5 Financial Wellness Tips To Improve Your Financial Wellbeing

According to United Healthcare, there are five basic principles of financial wellness. These principles are really the best five tips you can implement quickly to improve your overall financial wellbeing.

  • Budget your money
  • Save for emergencies
  • Seek guidance
  • Plan for retirement
  • Watch your credit score

Let’s talk about each in a little more detail.

1. Budgeting your money

There are loads of budgeting tools out there, and we’ll list some of our favorites in a future post as part of this series. But for now, you should know that budgeting is the backbone of financial wellness because every dollar should have a job. If you want to save for retirement, pay off student loans, or meet your financial goals, you need a budget.

According to NerdWallet, a good rule of thumb for budgeting is calculating your monthly income, picking a budgeting method, and monitoring your progress. They recommend the 50/30/20 rule to start. This means you’ll:

  • Allow up to 50% of your income for needs
  • Leave 30% of your income for wants
  • Commit 20% of your income to savings and debt repayment

You may need or want to adjust your budget over time, but this is a good place to start.

2. Saving for emergencies

In 2019, CNBC reported that millions of Americans are just $400 away from financial disaster. While 75% of those surveyed said they were doing “okay” or “fine,” 27% would need to borrow money or sell something to afford an unexpected cost of $400 or more. If you don’t want that to be the case for you, having an emergency fund is crucial.

If you can, begin saving for emergencies. The thing is, emergencies can happen anytime, and it’s not a matter of if—it’s a matter of when. An emergency of any size can put financial stress on our lives, but what qualifies as an emergency (and how much it disrupts your life) can change greatly based on how much money you save and what kinds of plans you have in place beforehand.

Following the Nerdwallet rule of 20%, you could begin prioritizing emergency savings before working on more debt repayment. Once you’ve funded an emergency or savings account, you could begin to prioritize other things, like retirement savings, investing, and more.

3. Seeking guidance

According to United Healthcare, this is an important part of financial wellness and we agree. If your family wasn’t good at budgeting and saving, or if you’re just not sure where to start, check with your local Chamber of Commerce for a financial wellness adviser and enlist their services. Some even offer free consultations!

You may also need help preparing taxes, in which case you’d consult a CPA. If you do your taxes yourself, Turbo Tax has paid options that include customer support.

4. Planning for retirement

Going back to that NerdWallet rule, once you’ve funded an emergency savings account, you can begin to give your money other jobs, like retirement savings. Many employers offer matching or other retirement programs, including IRAs and 401Ks. You’ll need to speak with your employer about your options. If none are to your liking or you aren’t sure what to do, go back to the previous step and ask an advisor for help.

5. Watching your credit score

Last but not least, United Healthcare recommends credit score maintenance as part of overall financial wellness. Credit scores allow you to get car loans, student loans, mortgages and home equity loans, and much more. Therefore, it’s an important metric to care for and maintain. Again, you might check with a financial advisor to understand and improve your score, but publications like Investopedia also offer reading that can help. 

There’s so much to say about financial wellness, but it really comes down to freedom of choice. Do you have the ability to choose where your money goes and what you use it for? If not, begin taking some steps to budget and save as you can. You don’t need a financial coach to get started, either—just good money management and some financial wellness management tools.

Financial wellness doesn’t happen overnight, but a little patience and hard work goes a long way toward a less stressful, happier life! Invest in your future, and it will be a lot more secure.