What Does Financial Wellness Mean
Financial wellness involves and achieves independence. No matter how much one works and earns as income, being tied down by debt and commitments provides no real freedom. Financial wellness works the same way as wellness for the body; when everything is working correctly, and there are no concerns, a person is healthy. When vulnerabilities, leverage, debt, and financial stress cause losses and struggles, the body becomes sick and can’t perform as well. Most people in the U.S. today are not in a healthy financial state. There’s no surprise in the statistics that most households have more debt than a third of the income they earn in a year. However, it is reversible with a financial plan, and for those who have found ways to achieve financial wellness, the results are amazing on how their lives have improved as well as their overall outlook for the future, reduction of stress, and control of what comes next.
Starting off, however, things might seem overwhelming, even like looking at a tidal wave from the bottom of the sand and wondering how in the world you will get out of that financial problem. Folks are in crowded company as people from all backgrounds are in the same boat. However, since 2008 when the big real estate-driven recession hit, FinFit has been guiding people proactively toward better financial futures and financial wellness. That includes being able to proactively manage savings, spending within a budget, and borrowing intelligently versus just as a stopgap. So, the first big step for anyone is to realize a financial problem exists, be honest about it, and then take action with FinFit to do something about it.
What Does Financial Well-Being Look Like?
Financial well-being consists of several building blocks, but some people confuse it with simply being able to buy things. People start working early to gain income. As people earn more, their cost of living goes up. At a certain point, a person has to decide to borrow to achieve the things that help a person step up in life. While there is good borrowing, it’s not defined well, and many start borrowing heavily the wrong way. That’s when the common trap occurs, as people get stuck in heavy loads of consumer debt, credit card debt, loans to pay off loans, and similar. At some point, a person realizes every dollar being earned is going to pay a debt, and something needs to happen quickly before it becomes too much.
In reality, financial freedom is far more complex. Financial health includes income to get through the month, managing a budget effectively, saving for big needs or emergencies, short-term investing and long-term or retirement savings, and capital expenses like a home or a car. Every component makes up a specific mix for a person and their individual financial health. No two people are exactly alike, but there are a lot of commonalities that create the ability to show people what works and what doesn’t in most cases. So let’s break it down to understand these building blocks better:
- Personal income – This is the money that people typically earn from a job or working on projects to receive the cash that pays personal bills, buys food, pays for the fuel for a vehicle, and basically gets one through the month and year, week after week. Some folks are paid by paycheck from an employer, and others are paid as a contractor by project. However, the purpose and effect are the same. This component represents 95 percent of what most people think of as their “money,” but the bigger question is, does a person have the ability to earn more? Most folks never ask themselves this question, so their income becomes capped by their own confidence level. That then means the alternative option has to be used: reduce expenses.
- Personal expenses – These are the finances people have every day, week, and month to live and get along reasonably. They include hard expenses like rent and mortgages, utility bills, food, vehicle fuel, and similar that have to be paid. They also include discretionary costs like entertainment, clothing, travel, and things that people can do without, but they choose to have them for different reasons. The discretionary costs produce the most savings but are often the hardest to cut. The hard costs can be reduced sometimes, but they don’t usually produce big savings.
- Savings — Everything from emergency savings to travel money to general savings falls in this category. In short, it is money set aside for bigger purposes than just daily living. And it takes some money management to grow. Savings account monies are the most common form of this component.
- Assets – People own different types of property in life. Assets have real value and can be sold if needed for sizable amounts of money. Assets are often in one of two forms: large fixture items like a house, or small but valuable forms like gold coins or stamp collections.
- Debt – This is the cost of borrowing money to buy or achieve things in life without paying for them in full upfront. When people go to college, they borrow money to pay the tuition costs. Then, they pay back the money plus interest to fulfill the loan obligation over time. Credit cards, student loans, and auto loans work the same way. However, too much debt eats up a person’s income and leaves nothing for other expenses. When a person’s financial portfolio is debt-heavy, they become at risk for financial failure and bankruptcy.
- Insurance – Modern life is full of risks that can wipe out a person’s hard work. In the old days, if people had bad luck, they ended up homeless. Today, we have insurance that helps avoid big costs if people pay a monthly fee for the protection. Insurance is critical for health care, driving, protecting key assets like a home, and protecting our loved ones with life insurance if a person passes away unexpectedly. And don’t forget disability insurance either!
- A Budget – Balancing between income, bills, and debt is a skill that is learned, and people need to apply it effectively to achieve financial success. Ideally, one wants to make enough income to cover all expenses. When that is not possible, a budget needs to bring in more money or reduce expenses to balance things out. A good budget also leaves some leftover to produce savings over time.
- Goals – What is the point of all your financial efforts? Goals are good to have because they help focus efforts as well as ensure financial discipline in spending. You can only save when you put aside enough to do so, including an emergency fund. That helps keep spending in line and drives a person to earn more income when possible. So, goals inherently produce better financial results, financial security, and financial life practices.
Do Financial Decisions Happen Blindly?
Poor financial decisions made without forethought produce even more problems. When people prepare, plan and execute financial decisions intelligently, the outcomes are far more positive and effective. That said, life is full of surprises, and they too can cause things to take a turn for the worse. Planning and preparing for such risks versus just waiting for them to happen also helps avoid becoming headaches and financial disasters people can’t dig out of later on. Examples include unexpected illnesses, accidents, legal issues, tax mistakes, and similar.
Instead of operating blindly, those with healthy financial wellness plan for tomorrow and into the future. They don’t settle for what works for just the year; they have details and goals in motion for the next five, ten, and twenty years. That’s because financial well-being is an ongoing practice. It involves creating a personal plan and repeatedly updating it as things change, new opportunities arrive, and initial goals are achieved.
How Does One Get Started Exploring Financial Health?
The first challenge is the current status analysis. That means taking an honest look at your financial habits right now using bank statements, income documents or pay stubs, credit reports, credit card bills, loan statements, and a listing of any assets owned. This is critical for understanding a person’s current starting point and what needs improvement. Married couples should include both personal pictures, not just one partner alone. Try not to hide anything either. It won’t do anyone any good, and the missing information can easily skew the total picture of one’s current status.
Next, a financial planner needs to review the materials collected objectively and then identify the vulnerabilities. That means clearly evaluating a person’s spending habits, critical expenses, and discretionary costs versus their income and what can change for the better. Sometimes the advice can be focused on squeezing down on unnecessary expenses. For others, it may very well be needing to get a second job for a bit to move ahead and get rid of debt. Everybody’s case is different depending on what they need to do to achieve financial wellness.
Finally, with a full picture and a clear idea of the alternatives available, a budget plan can be developed that effectively protects income, addresses necessary expenses, avoids waste, and begins to make progress toward real financial goals and a strong future. In short, it’s the big step toward taking control again.
Are There Elements of Your Financial Health You Can Control Right Now?
In short, the answer is yes. You are not alone if you feel that your financial situation is unworkable, that you’re helpless to make any real headway. Financial accomplishments don’t happen like Vegas — a big win in one day. Instead, they take persistent work every day and improve over time. In some regards, our educational system has shortchanged people by not providing a viable financial education along with everything else people need to learn to function in society. So, as a result, most people get lost.
The initial basics of moving toward better financial health are well understood: pay off credit cards, get rid of or refinance big loans for better terms, cut spending, and earn more income where possible. However, that’s not the whole picture. Retirement plans, education, long-term savings, and ongoing spending habits are essential as well.
How Can a Financial Advisor Help?
Consider the possibilities:
- Professional assistance in developing a working budget plan.
- Examining overall debt and pointing out where it can be reduced.
- Identifying the true cost of debt versus saving and paying in cash.
- What options are available if one’s debt is too much to reasonably resolve.
- Resources for learning and obtaining financial literacy.
- Fully understanding one’s daily spending and needs versus just hoping it all works out every month.
- Examining how today’s choices are moving toward tomorrow’s goals.
All these items above and many more can be realized with help from a professional financial advisor geared toward improving financial well-being.
Identifying Long-Term Financial Goals
Your goals are your own, but a financial planner can help verbalize them into realistic targets that make sense and are doable. That includes plans and steps utilizing investment options to effectively wipe out debt and realize control of one’s financial future. Realistic goals include:
- Retiring early
- Education plans
- Buying a home
FinFit’s unique program and financial services are designed to maximize financial wellness from a holistic perspective versus just singular components, like resolving debt alone. With a goal-oriented approach, FinFit advisors help people craft realistic paths that can be put in action from day one to produce positive results by progressively working toward financial independence.
In short, what does financial wellness mean to you? Take control of your life’s financial direction and take action on improving your financial situation.
Connect digitally with FinFit’s online form or talk in person via 1-888-928-7248 and kick off your transition to financial wellness for your future. Financial wellness programs work. Fix your personal finance today instead of waiting for tomorrow. Employers, call us for employee financial wellness as well.