What is “Financial Wellness?”
Financial wellness is equal parts mindset and practice, and it basically equates to the steps you take to make sure you’re constantly in a comfortable state with your finances.
While you can find many guides and plans online that outline how to achieve financial wellness, they are often very bland and generalized because everyone’s situation is different and wellness is a vague term that might be different for you. That being said, there are several key tenants to financial wellness that you can use to guide yourself to defining financial wellness and eventually achieving it!
Defining Financial Wellness
Wellness in all its forms is about being comfortable. Since most Americans have debt and many live paycheck to paycheck, it can be hard to ever really achieve comfort. But by setting clear parameters around what will make you feel confident every time you swipe a credit card or make a rent payment, you can get to a point where you are satisfied with where you are.
To me there are three things you need to define to find your personal financial wellness goal:
-The amount of money in the bank will make you comfortable.
-The amount of expenses you can afford to remain comfortable.
-The amount of debt you feel comfortable with.
-The kinds of assets that you own that will make you feel comfortable.
The answers to these questions are all very different. For example, I don’t think I can truly be comfortable until I own my own home, even if I’m paying a mortgage that’s better than rent. But my neighbor (who is retired and 85) has been renting her condo since 1991 and is fully satisfied with that situation. The same is true for leasing versus buying cars, having money in the stock market, a pension, etc.
It might be hard to find exact numbers for these bullet points, but there are a couple of things that can help. For starters, how much should you have in savings? I asked four local financial advisors and they all said you should aim to have three to six months of expenses in a high-yield savings account at all times and around two months of expenses in a checking account.
When it comes to expenses, that is the hardest one to define. Do you have kids, a spouse, are they earning a second income? There’s a lot to consider. Most financial advisors agree on the 50/30/20 budget. That’s where you devote 50% of your take home pay to mandatory places like rent, mortgages, insurance, and groceries. 30% can go to wants, stuff like games, clothes, and more, and the final 20% goes into savings/paying off debts. While this is a good rule, it is not the rule. Adjust this as you need to. And if you’re in a place where you can’t meet these goals, it’s something to strive for and is a good benchmark for what financial wellness might look like for you.
It would be nice to have no debt, obviously. But between student loans, car payments, mortgages, and everything else that might make you squirm, it’s hard to exist without them. The fact is 77% of Americans have some form of debt. If you have it, don’t despair! You’re not doing anything wrong. But having debt can often feel like an anvil is dangling by a rope above your head. When you calculate your expenses, you should see how much of your payments are going toward debt, and how much it affects your ability to meet your goals.
When it comes to assets that’s the tricky part. Having your own home or car is a big goal for a lot of people. But if you read the news you might know that these goals are becoming less and less attainable. Because of this, this aspect of financial wellness might require a mindset shift.
Become a Finance Guru
The heading here might feel like a lot. But becoming financially literate is a lot easier than it sounds. Here are the simplified steps:
Find out what you’re spending money on
Either by creating a spreadsheet or saving receipts for a month, take a close look at what you’re spending your money on.
Determine if you’re saving money the “right” way.
Do you have a savings account? Stocks? An IRA? It can be overwhelming to move away from shoving everything under the mattress/checking account and move into actually investing, but the sooner you rip that band-aid off the better you’ll be. And if you’re already investing/saving your money, double check there isn’t a better rate!
Seek out a financial advisor
While this is the 50th time you’ve probably seen this piece of advice, there’s a reason. Financial advisors are more affordable than you might expect, and they can really help you figure out a plan of action for saving money, meeting goals, retirement, and achieving financial wellness.
Create a Satisfying Goal
Alright, now the big one. Creating a satisfying goal means you take all that information and you design a set of parameters that will help you aim toward financial wellness. This goal could be limit monthly expenses to $1,500 or it could be to reach a certain amount in your savings account. Just make sure it’s a goal that lines up with our previous points and will ultimately be what you can point to and say “that’s what makes me feel financially healthy.”
This goal should be reasonable and if you already feel comfortable with your finances it could be something you’ve already hit, like having 6 months of income saved up. It’s really up to you!
Staying (fiscally) Healthy
Now here’s the hard part. Just like physical wellness, once you’ve achieved financial wellness, you’ve got to work to keep having it. So long as you’re keeping an eye on your spending/income and making sure you’re never falling too far out of your budget/goal, you should be set.
If you worry you’ll struggle with this aspect of financial wellness, you can always set calendar reminders for every month or two where you sit down and look at your bank account.
Once you practice this for a while it will become second nature and you’ll feel a lot more comfortable with all things finance. Just remember it’s a journey! And it might take some time to feel financially healthy. But once you do, it’s a great freeing relief.