Financial Wellbeing: What Is It And Why It’s Important

There are a lot of different elements that make up our overall wellbeing. Factors such as our health, our mental wellbeing, social life, and relationships all factor into our wellbeing. But, did you know that your financial wellbeing is just as important and can impact your life in a significant way?

There are many people around the world that don’t have their financial wellbeing in order, and this can often result in adverse effects like increased stress. However, a lack of financial wellbeing isn’t always in our control and can be due to outside factors.

If you’re wondering what exactly financial wellbeing is, as well as how it can impact you and how to improve it, then keep reading.

Photo by Damir Spanic on Unsplash

What is Financial Wellbeing?

Financial wellbeing is an element of financial security. In fact, feeling financially secure can lead to positive overall financial wellbeing.

According to a report by the Consumer Financial Protection Bureau, financial wellbeing is defined as follows:

• You can absorb a shock to your finances, such as an expected event
• You’re in control of your daily and monthly finances
• You are able to meet the financial goals you have set for yourself
• Your finances allow you to make the choices you want to enjoy your life

All that being said, there’s no magic amount of money you need to have in order to reach financial wellbeing. It looks different for everyone and is decided based on everyone’s individual definition of what they perceive to be financial success or wellbeing.

When looking at financial wellbeing, it’s not enough to just consider your income or your savings, but rather your entire financial picture. For example, you might have a good salary, but mountains of accrued debt that isn’t paid off.

The 5 Pillars of Financial Wellbeing

While financial wellbeing is different from person to person, financial experts have nonetheless tried to measure what it means across the board using more broad definitions.

A research associate with Corporate Insight, Claire Daly, shows that there are five specific pillars to measure financial wellbeing. According to Daly, these are the ways in which a person can reach financial wellbeing:

1. You don’t experience a high level of stress due to your finances or the state of your future finances.
2. You have a low amount of debt, or better yet, none at all. If you do have debt, it is manageable and you can easily pay it off without any significant interest or additional penalties.
3. You have a comfortable amount of disposable income to continue living your current lifestyle.
4. You’ve maintained a savings fund for emergency purposes in the event that you lose your job, income, or you need to cover unexpected expenses.
5. You’re able to make sound judgments in order to plan for your future financial goals and so that you can cover any costs that come up unexpectedly.

While these five pillars of financial wellbeing seem simple enough, there are many people who are unable to uphold them. This can result in significant financial stress which can permeate into other areas of your life and eventually affect your mental and physical health as well.

How You Can Improve Your Financial Wellbeing

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If you’re not happy with your current level of financial wellbeing, you’re not stuck. There are ways to elevate your financial wellbeing and improve your situation so that you can get to a place you’re happy with and that you can sustain long-term.

Here are a few tips for improving your financial wellbeing:

• Set financial goals. Set goals and work towards them slowly and steadily. You can start off with a small achievable goal or milestone, like save a few hundred dollars over a couple of months, and then work your way up to larger ones.
• Be mindful with your splurges. Being financially stable doesn’t mean you never splurge on something you “shouldn’t” buy, but rather that you’re mindful of when you’re spending money and how. The occasional impulse buy won’t put you in the red, but make sure it’s more of a once-in-a-while occurrence and not a regular habit.
• Learn more about finances. A lot of the time when people find themselves in financial trouble, it’s because they didn’t know much about finances in general so they couldn’t see how damaging their spending habits were. By learning more about finances, such as learning about commonly-used terms, investments, saving options, or interest rates, you’re equipping yourself with the knowledge you need to make solid choices.
• Check-in with your finances. You can’t know how you’re doing unless you stay up-to-date regularly. Set a date on the calendar every month or couple of weeks to get a broad picture of your finances and then make any adjustments you need.

Habits that Build Financial Wellbeing

Tips are always helpful when it comes to achieving financial stability, but they won’t always help you create healthy habits that will sustain you in the long run. Instead of looking for a quick fix to your finances, try and establish regular habits that will help turn around your financial wellbeing.

Let’s take a look at a few habits you can start to implement today in order to become more efficient at managing your own finances:

• Spend less than you earn. This seems obvious, but many people end up spending more than they’re making, whether by accident or as a habit. Figure out how much you’re earning and what you need to put aside for recurring expenses, like rent, groceries, or car payments, and then set a maximum amount beyond that that you can spend each month.
• Don’t borrow more than you can afford. Loans are tempting. It’s a quick fix for a sticky financial situation. But you can find yourself in even more hot water over time after factoring in interest rates or fees. Borrowing money isn’t always bad, for example, student loans build good credit and allow you to pay off your debt over time. Still, be careful when borrowing money and always try and take the bare minimum you need.
• Avoid comparing yourself to others. It’s always tempting to measure yourself against friends or family members when looking at finances. You might see friends who lead a more luxurious lifestyle than you, but you don’t know what’s going on behind the scene. They may be in serious debt, or perhaps they have a well-off family who’s helping them. When it comes to finances, it’s not a race between you and others, but rather a personal journey.

To Wrap Up

Financial wellbeing may seem like a difficult achievement if you’re currently experiencing hardships, debt, or instability. However, it’s not impossible to achieve. You can always seek help from a financial expert to guide you along your journey and help you set your finances in order.

At University of the People, we believe that our finances should never be a hindrance to the education you’re able to receive. If you want to pursue higher education to better your career options, our online degree programs are always tuition-free. Additionally, we also offer scholarships to help cover administrative and assessment fees, so our students never need to worry about their finances.