Financial wellness is something that everyone wants, in theory, but is very difficult to define. Sometimes, it feels more like a fleeting buzzword than a real state of being that a person can actually achieve.
Here’s the good news: You can accomplish financial wellness. It might not be easy, though, because financial wellness cannot be bought at a store, purchased online, or procured from a close family member.
Financial wellness is something that must be worked for. But financial wellness is worth every ounce of effort.
To work towards something, first, we must first understand it. The Consumer Financial Protection Bureau (CFPB)did a comprehensive study on financial wellness in 2017 where they found that because individuals value different things, strictly monetary measures such as income or net worth were not a perfect measure of financial wellness.
Instead, financial wellness relies on our ability to take care of our current and future selves with the resources we have. Naturally, this is going to look a little bit different for everybody.
Below, we will take some time to understand the definition of financial wellness. With this foundation, we can begin to design and enact a plan for anyone who wants to work towards financial well-being.
What Is Financial Wellness?
The CFPB defines the four elements of financial well-being, which include:
• You have “Control over day-to-day, month-to-month finances.”
• You have the “Capacity to absorb a financial shock.”
• You are “On track to meet your financial goals.”
• You have the “Financial freedom to make choices to enjoy life.”
Again, you’ll notice the absence of traditional markers of financial success, like earning a high income. While having a high income certainly helps, there are plenty of people who are high earners but are not financially well. Conversely, those who are low or middle earners are not precluded from achieving financial wellness.
Taking Steps Toward Financial Wellness
Next, we will cover some tips that can help you work toward financial wellness.
Paying Attention to Your Mindset
Financial wellness is connected to emotional wellness. These concepts are all related, and it is hard to have one without the other. Those who have experienced trauma or difficult experiences with money (such as growing up in poverty) may need to address what may be a tenuous relationship with money. Heck, all of us should take time to examine the way that money affects our mental states.
This process is going to look different for everyone. Some people may feel the need to do an examination of their beliefs about money they have from growing up. Others may want to explore issues with a professional.
For some folks, creating daily affirmations (such as “I am deserving of abundance”) or building a gratitude mindset (“I am grateful to live in a place where saving money is possible”) may work well. Keeping your money mindset in shape can take continual work, so try pairing exercises like these with the more logistical money tips we go through below.
Tracking Your Spending
It’s not glamorous, and it is that last thing that so many people want to do on their precious weekends, but tracking spending is essential to financial wellness. There is real truth to the saying “What gets measured gets improved.” There’s no way to fix problems like overspending without understanding exactly what goes in and what goes out.
Additionally, having a good budget is an important first step in building a solid overall financial infrastructure, which can include more advanced steps like saving and investing for long-term goals, like retirement.
It can feel overwhelming to start, but it doesn’t have to be. Begin with this month’s spending. Pull up your statements and organize purchases into categories, such as utilities, groceries, dining out, and shopping. Once it is added up, does a spending category jump out at you? This simple exercise often reveals at least a surprise or two.
If you don’t want to do manual tracking, you can use an app like SoFi Relay or see if your bank account provides a tracking feature. SoFi Money® cash management accounts provide weekly spending charts so you can visualize where your money is going.
Your next step would be to organize this information into a monthly cash flow report, where you compare your source(s) or income versus the money that was spent in that same month. Did you spend more than you earned? Or did you earn more than you spent, with some left over for savings? Next month, go through the exercise again (it gets easier every time). What patterns are emerging? Understanding these habits will be crucial to your success.
Building Saving into Your Budget
An integral part of financial wellness is having money in the bank. People who have saved money also tend to have the peace of mind knowing that they could afford an emergency or job layoff. Additionally, financially well people are also typically saving for their future. This means setting some money aside for long-term goals like retirement.
To begin a saving routine, you can start by opening a savings account and transfer a portion of the money in your checking account into your new account. It can be a good idea set up a savings account that is separate from your checking.
Some people may find that cutting back on their spending and moving extra funds into savings is the way that works best for them. (For tips on reducing spending, see below.) Other people may find that a more proactive approach is best.
To fully embrace your new savings plan, you can set up an automatic, recurring transfer from your checking account to your saving account. It’s okay to start small—even small amounts matter, and everyone has to start somewhere.
Looking for Big Wins to save Money
If you want to start saving more money, often the fastest way to do so is by spending less money.
Clipping coupons or not ordering the appetizer once a month aren’t going to be the items that make or break your budget. Instead, look for ways that you can win big on savings. Easy ways to do this include cutting back in one of the categories we tend to spend the most amount of money on—housing, transportation, food, and other bills.
There are almost always ways to spend less in these categories—it’s often a matter of what we’ve grown comfortable with or accustomed to. With housing, you could downsize or have roommates. On transportation, you could own a more affordable car or consider car alternatives.
For food, actually use those groceries that you buy, or consider cutting back or eliminating eating out. There are plenty of ways to lower phone, electric, and gas bills. As a bonus, you can cancel any and all subscriptions (like cable) that you aren’t using.
Controlling Your Debt
It can be hard to feel financially well if you are also feeling overwhelmed by debt. Debt can come in many forms—credit cards and other personal loans, auto loans, student loans, and mortgages. People incur debt for many reasons, some of which are in their control and some that aren’t. Either way, large debt loads or big monthly debt bills can trigger stress in a person.
What can you do to control debt that feels out of control? The first step is to remind yourself that debt can be overcome and that it does not define you or your future. Second, make a plan to get out of debt by listing out all sources of debt, and tackling them either by the avalanche or the snowball method.
If you are dealing with credit card debt, specifically, you can call the credit card companies and ask them to lower your annual percentage rate (APR). Explain to them your situation and that you are trying to improve and organize your finances. A lower APR means lower interest charges, which may help you make some headway in paying off your credit card debt.
Depending on your APR, you may want to consider paying off your credit cards with a personal loan at a lower rate. This probably won’t make your debt go away (or stem the problem that caused the debt), but it could help you pay off your debt faster.
Accepting That Financial Education Is Ongoing
According the CFPB, a characteristic that all financially well people share is that they are committed to learning about how to manage their money. They understand that both the work and education is a continuous process.
We’ve provided a lot to think about here, so you can start with one or two items, and build from there. Don’t expect yourself to get there right away—remember to embrace the idea that financial wellness is a journey and an ongoing process. Good luck as you find a path towards financial wellness that works the best for you.
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