Financial wellness is a particularly important aspect of overall wellness, with many studies highlighting the impact of wealth on health outcomes. Having good financial wellness can ensure that you can cover emergency expenses, afford out of pocket medical costs, obtain funding for homes, auto loans, and business ventures.
Financial wellness can be measured by the state and stability of your current financial situation. Factors that increase your financial wellness include having a steady flow of income, stable expenses, growing cash balance, and strong return on investments. There are many methods to improve your financial wellness which include methods to build assets, reduce debts, and work towards increasing intergenerational wealth.
Financial wellness is dynamic, meaning that it changes based on assets and fluctuations in the prices of goods, supplies, and services. A person’s savings and investments can be a good measure of the money available for use. Other measures such as net worth are also important to consider as lenders use net worth to determine the amount of debt which can be handled. Net worth is the value of what you have (i.e., assets) subtracted from what you owe (i.e., debts). Assets include the money you have in the bank, stocks, bonds, your home, your car, and items that could be sold for money. Debts can include student loans, personal loans, mortgages, car loans, and other monthly liabilities that you owe. The median net worth for Americans pre-pandemic was $121, 760. Calculating your net worth annually is an effective way to remain on top of your financial wellness. There are a variety of net worth calculators, but I like Ramsey Solutions, as it allows you to view a side-by-side comparison between your assets and liabilities. It helps you with determining methods to increase assets and reduce debts, as well as planning to increase your net worth over time. You can use the calculator here https://www.ramseysolutions.com/retirement/net-worth-calculator.
There are other factors worth exploring when considering your financial health. Some important questions to consider include:
- Do you have an emergency fund?
- Do you have a positive credit rating?
- Is your net worth positive or negative?
- Do you have your basic needs in life?
- Do you have the things you want in life?
- How much of your debt is high interest?
- Are you actively saving for retirement?
- Do you have a retirement goal?
- Is your health insurance coverage adequate?
- Do you have life insurance?
It is important to explore questions 4 and 5, as our daily and monthly expenses can come down between needs and wants. Having money to cover basic needs such as food, clothing, shelter, and medical care are important. Having money to cover wants such as designer clothes, luxury vacations, and new electronics, may not be beneficial for long-term financial wellness especially if your net worth is negative and your credit rating is poor. Sophia Amoruso stated that “money looks better in the bank than on your feet.” I feel like many of us have been taught ideas of success that are tied to material items, and not actual wealth. Value is placed on cars, clothes, shoes, and even hair style choices; however, we are not taught to invest money, save money, and tie our assets to non-material things. We are not taught methods to build generational wealth for our children, grandchildren, and future generations. Therefore, many of us end up barely making ends meet or living paycheck to paycheck. Living paycheck to paycheck is often associated with low income or working poor citizens. However, 48% of individuals with salaries above $100,000 live paycheck to paycheck. Financial wellness tips can benefit individuals from all backgrounds as all of us can benefit from more money in our bank accounts and increased assets.
Here are some top recommended financial tips:
- Budget
- Creating a budget is important for personal and business matters. Budgeting involves looking at your expenses and comparing them to your income.
- With budgeting it is important to explore where you can reduce your expenses such as cutting out subscriptions and lowering monthly payments.
- With budgeting it is important to explore your needs with your wants. You NEED to pay your rent or mortgage payment. But you WANT that coach bag.
- Sometimes spreadsheets or check book balances can be helpful. Others use apps or software that comes with their bank. For example, Bank of America and Chase allow you to track monthly expenses and income to help you budget better.
- When budgeting it is important to be aware of increasing your spending as you increase your income. Try to be conservative with income increases and use the extra money to save more or pay down debt. This will help your long-term financial wellness.
- Emergency Funds
- Emergency funds are money saved to cover emergency expenses. You can have an emergency fund be a part of your savings account or create an additional account to cover unexpected car repairs, home repairs, medical expenses, or other emergencies. Your emergency fund should cover six months of your living expenses (i.e., monthly bills); however, during economic recessions, it should cover twelve months of living expenses.
- Spending
- Setting up automatic payments can be a good method to stay on track of expenses and save as many companies provide a discount for autopayments.
- Being an informed consumer is important, so research products and services for the best rate. Sign up for free checking accounts and explore low-interest credit cards. Shop around for lower costs to monthly expenses such as cable and gym memberships. If you have been a long-term customer call to see if better rates are available.
- Try to put your income towards retirement with automatic payroll transfers. Spend half of your income on your needs, a third on your wants, and the remainder on your savings/paying off debts. Try not to spend more than 40% of your income on housing expenses.
- Debt
- Paying off debts can be tricky as the recommendations may not work for your situation. Many of us have a variety of debts such as mortgages, student loans, credit card, personal loans, medical debt, debt to utility companies, and parking ticket debt. Some of those debts may be more urgent than others. Other debts can impact your ability to receive financial assistance for school or obtain employment.
- Monthly debt can be paid off by tackling the smallest debt first and then working up to the largest debt. You could also work on paying more towards the larger debt, while paying the minimum towards smaller debts. Interest rates are important to consider as they can increase the amount of debt you will have to repay over time.
- Debt consolidation can be beneficial as it can allow you to make one payment at a fixed rate as opposed to several monthly payments with various interest rates. Considering payment plans for some debts such as medical or unpaid parking tickets may be beneficial in the long-term.
- Researching before you take debt is important. Shop around for the best credit card company, research which ones have low interest rates and no annual fees. Shop around for options to pay for school, should you choose higher education or completing a trade. Seek more affordable school choices; if you need to take out loans for school, thoroughly research the type of loans that qualify for student loan forgiveness. Take advantage of student loan forgiveness options with either the National Health Service Corporation (NHSC) or Public Service Student Loan Forgiveness (PSLF) program.
Financial wellness should be an important part of your wellness journey, improving your financial standing should be an annual goal. It is also important to share financial wellness tips with our children to help with their success. Members of our social circle can also benefit from financial wellness tips, so get in the habit of sharing a discount with a friend or colleague or helping someone else navigate towards student loan forgiveness options. Finally, when choosing a partner, ensure that your financial wellness goals align as financial mismatch can increase stress in relationships and can contribute to divorce or separation.
Wishing you health and happiness
My Mind, My Body, My Journey™ 