Money is the No. 1 stressor for most adults. You may be struggling with credit card debt, an emergency that involves a large expenditure or whether you are saving enough for retirement. The pandemic has added an extra layer of financial stress as people lost their jobs and our economy has been upended. Financial wellness has been pushed to the forefront of personal finance discussions. But how can you achieve it? Let’s break down what financial wellness is and the practical strategies to achieve it in your own life.
A financial advisor could help you put together a financial plan for your needs and goals.
What Is Financial Wellness?
There are many definitions of financial wellness. A commonly accepted definition was published by the Consumer Financial Protection Bureau (CFPB) in 2015 and has four parts. Financial wellness, according to the CFPB, is having control over day-to-day and month-to-month finances, being able to handle a financial emergency, being on track to meet financial goals, and having the financial freedom to make choices that allow you to enjoy life.
The definition of financial wellness has been refined over the years. Others have added more detail. Some add that financial wellness is a manageable level of financial stress and a lifestyle that is beneath your means. Some say that financial wellness is a strong financial foundation that includes an emergency fund, no high-interest credit card debt, retirement savings, an estate plan and adequate insurance. Those items can also be your individual and family goals.
You are not financially well if you are juggling your finances every month to pay your credit card bills or failing to save for retirement because you don’t have the disposable income to stretch that far.
How Does the Lack of Financial Wellness Impact Us?
Since money is the biggest stressor that most adults have, the lack of financial wellness affects us mentally and emotionally, but also physically. Many illnesses can be traced to stress. According to the American Institute of Stress, many employees’ levels of financial stress can lead to fatigue, insomnia, irritability, mood swings and changes in appetite combined with stomach issues. These issues can lead to less productivity at the office. Some employers estimate that they lose at least two hours per day of productivity for each employee since they are dealing with financial issues during working hours. Employers are instituting programs to help with financial literacy in the workplace and to decrease financial stress.
The Pricewaterhouse Cooper’s 2021 Employee Financial Wellness Survey found that 72% of millennials (25 – 40 years) and 68% of Gen Zers (9 – 24 years) are experiencing financial stress due to the pandemic. Some of the stress is from student loan debt. About 40% of millennials have student loans and 74% of that 40% find student loan debt to be a significant stressor and it causes them to have difficulty meeting other financial obligations.
Generation X (ages 41 – 55 years) has the most revolving credit card debt of all the generations with Baby Boomers (ages 56 – 74 years) coming in second. Concerning retirement savings, about half of the workforce does not participate in a retirement account and only one-third of that number feel that they are on track for retirement.
Not only is our physical health impacted by this financial insecurity, but our emotional and mental health is as well. Our relationships with our families are strained. We become emotionally insecure and perhaps even physically sick.
How to Achieve Financial Wellness
If you want to achieve financial wellness, start with developing a set of present and future goals. Consider saving for an emergency fund your first goal. Half of all Americans cannot cover a $400 emergency. The usual advice is to save enough in an emergency fund to cover your take-home pay for six months. Once you know you can survive a job loss and still contribute to your family, your financial wellness will automatically increase.
Choose a goal or two and start small. Maybe you want to get rid of your high-interest credit card debt or afford better health or life insurance. If you don’t think you can afford those goals, take a look at your spending. Get out your bank statement and try to isolate all the expenses you could have done without. Do you have an expensive coffee habit? Do you have too many subscriptions that are automatically debited and you’ve lost track? You can slash your expenses by getting rid of those sorts of things. Make sure you leave room for healthy food, exercise and a reasonable level of fun.
After you slash your expenses, look at your credit card debt. If you have high-interest, revolving debt, start paying on the card with the lowest balance. After that one is paid off, move up the ladder. Don’t pay the minimum payment. Increase your payment to as much as you can afford and you will succeed sooner rather than later.
Are you saving for retirement? It’s never too late. If your employer has a 401(k) program, put as much in it as you can afford and be sure to choose appropriate investments for your age, time horizon and investment goals. Open an individual retirement account (IRA).
If you haven’t been goal-oriented about your financial life, don’t try everything at once. It takes some adjustment and you have to give yourself time to develop good financial wellness habits. Your employer may have resources that can help you. Check with your Human Resources Department.
Achieving financial wellness is important not only to your mental and emotional health but also to your physical health. If you always feel like you are living from paycheck to paycheck, strive to achieve financial wellness by evaluating where you are and where you want to go. Set goals and focus on achieving them. If you need help, a good financial advisor can assist you in all financial areas.
Tips for Reaching Financial Wellness
- SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Do you want to get started saving for that emergency fund? SmartAsset’s savings calculator will help you determine the impact of contributions and interest on your savings.
- If you need to know the amount of your take-home pay in order to make job decisions, use SmartAsset’s paycheck calculator to assist you.
By Rosemary Carlson