What is Financial Wellness (and Why Does it Matter)?Financial Wellness
The state of our finances is top of mind for many of us, particularly with the rising cost of living in recent years. Now, more than ever, investing in your financial wellness is well worth it. No matter where you are in your financial journey, it’s important to know what you are working to achieve, and how to assess your progress.
What are Financial Wellness and Financial Stress?
Before deciding if you’ve achieved financial wellness, you should know exactly what it is that you’re looking to accomplish. Financial wellness can be defined as a “the feeling of having financial security and financial freedom of choice, in the present and when considering the future.”1
Financial wellness is important because its effects go beyond your bank account. Financial stress is one of the prominent forms of stress in our lives. In the opposite of financial wellness, it can be defined as “a state of worry, anxiety, or emotional tension related to money, debt, and upcoming or current expenses.”2 Consider how much time and energy you spend managing your money, as well as how every aspect of your life is affected when you’re dealing with money problems.
Financial stress has many symptoms, including anxiety, avoiding phone calls, social plans, feelings of shame or embarrassment, and irritability. It’s also important to consider the impact of stress on your overall health. And because financial stress is typically prolonged, its impact can be severe.
People who are chronically stressed are more likely to experience trouble sleeping, lack of self-care, weight fluctuation, and other pains or physical health problems.
Setting yourself up for financial wellness can help combat immediate symptoms of financial stress in your life while creating a long-term financial plan.
What Does It Mean to Be Financially Well?
To be considered financially well, you should:
1. Be in Control of Your Day-to-Day (and Month-to-Month) Finances.
Does your income comfortably cover your regular expenses? Creating and sticking to a budget is an essential part of financial wellness. There are a multitude of budget tracking apps and platforms that can help you see exactly what you’re spending money on, and places to reduce spending, and develop a plan for the future.
2. Be in a Place Where You Could Absorb a Financial Shock. This Could Include a Hefty Car Repair, Medical Emergency, or Any Other Unexpected Expense.
We know all too well the importance of a rainy day fund. You should plan to have $500 – $2,000 saved3 so that an unforeseen cost won’t derail your financial journey. As a longer-term savings goal, prioritize building an emergency fund that could cover your living expenses for 3-6 months if needed. Other protections or insurance can help you be prepared for these emergencies, adding to your sense of financial security.
3. Determine Your Financial Goals and Stay On Track to Meet Them.
Consider both your short- and long-term financial goals. If you have debt, managing it should be at the top of your short-term financial plans. Managing debt is crucial to financial wellness. This includes paying off high-interest debt as quickly as possible, making regular payments on other debts, and avoiding taking on new debt unless necessary.
Other short-term goals could include saving for an extended vacation, while your long-term plans should include retirement or a down payment on a house.
Besides strictly, consider investing your money wisely with an eye on long-term growth. Investing can help you to grow your wealth over time. Choosing a diversified portfolio of stocks, bonds, and other assets can help to minimize risk and maximize returns.
Finally, as you embark on your financial wellness journey, focus on financial literacy. Understanding concepts like credit scores, taxes, interest rates, and retirement planning will help you make informed decisions and achieve your financial goals.
4. Have the Financial Freedom to Make Choices that Allow You to Enjoy Life.
Financial wellness also means making your money work for your lifestyle. If you are comfortable with your spending habits and savings, you can use your finances for your priority purchases that help you enjoy life– that trip abroad, that new bag you’ve been eyeing, or even a nice dinner out with friends.
In summary, financial wellness is the state of being financially secure, both in the short-term and long-term. It involves budgeting, saving, managing debt, and developing financial literacy. Prioritizing financial wellness can help you avoid both the physical and mental effects of financial stress.
|Security||Be in control of your day-to-day (and month-to-month) finances.||Be in a place where you could absorb a financial shock.|
|Freedom of Choice||Have the financial freedom to make choices that allow you to enjoy life.||Determine your financial goals and be on track to meet them.|
Ready to Check in with Your Personal Financial Wellness Status? Download this Financial Wellness Checklist to Get Started!
WAEPA’s Free Financial Wellness Program
WAEPA members have access to a free Financial Wellness Program through our partnership with Ernst + Young (EY). This program includes access to tools and financial advisors to help manage day-to-day finances and work towards long-term goals.
WAEPA has been serving current and former Civilian Federal Employees since 1943, providing exclusive Group Term Life Insurance and Short-Term Disability Insurance. WAEPA members have access to resources, tailored specifically to the needs of Feds and their families. Today, 46,000 Feds choose WAEPA to be there for life’s biggest moments.
- Turner, Terry. “Financial Wellness.” Annuity.Org. 30 January 2023.
- Cooks-Campbell, Allaya. “Financial stress: What’s money got to do with sanity?” BetterUp.com. 7 October 2021.
- McMillin, David. “Rainy day fund: Definition, purpose, how much to save, where to keep it.” Bankrate.com. 12 January 2022.
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