Last updated Jun. 6, 2024 by Jessica Green
It’s time you let your financial bygones be bygones. If you’re always in debt, or prone to making bad financial decisions, here’s a guide that gets you on the path to financial wellness.
Financial Wellness is much more than staying on top of your finances. It is the ability to understand your financial emotions, manage and build resilience to risks while maintaining your financial freedom.
So, if you’re interested in improving the overall state of your financial well-being, read on.
Steps To Financial Wellness
Financial Wellness is a journey. And you have to clear out each stage before moving on to the next. Here are the steps/levels to financial wellness.
- Financial Survival: This is the first stage/level. At this level, you strive to make enough to meet your basic needs such as food, clothing, and rent.
- Financial Security: Staying committed to the financial wellness path will get you on this level. This level is where you’re able to provide your basic needs. Hence, you begin to set financial goals and make plans for emergencies.
- Financial Flexibility: At this point, you have enough savings and can make travel and entertainment plans.
- Financial Freedom: This is the highest point you can reach on your wellness journey. It is a point where you can make investments and spend in the way you like without worrying about debts.
To attain this stage, you must understand concepts such as budgeting, saving, investment, debt, insurance, goals, savings accounts, and credit scores.
How To Achieve Financial Wellness
Most financial decisions you make center around saving, debt, investment, budgeting, banking, and credit. So to achieve financial wellness, you must gain in-depth knowledge on the topics mentioned.
How To Budget And Manage Money: A Guide To Financial Wellness
A budget tells you how much you have, the amount you spend, and how you can make adjustments. It is a plan that sets you up for success. So if you’re intentional about budgeting, achieving financial wellness becomes inevitable.
To build financial wellness, you must have a good knowledge of money. And budgeting gives you the chance to understand how money works.
How To Make A Budget
The process of creating a budget is simple. Here’s a guide to help you get started:
A. Know Your Income: If you have multiple sources of income, list them out. Income can include money from a pension, investment profits, monthly paychecks, alimony, settlements, tenants, and side hustles.
B. Expenses: List out your daily, weekly, and monthly expenses, and categorize them into need and want.
To get detailed information on your expenses, request a bank statement and review your credit card transaction history and brokerage account.
Once you track and list all your expenses, you’ll gain insight into your spending and money habits.
C. Set Realistic Goals: This is the part where most people fail. If you want a successful budget, set an achievable goal – this means a goal that aligns with your current financial situation.
For instance, if your goal is to save for a house downpayment within six months on a $3,000 income, you’re heading for failure.
Before setting a goal, review your previous habits. For example, if your monthly expenses on groceries is $700 and you wish to reduce it by $100, review your previous month’s expenses and find areas to make adjustments.
Another Interesting Article: How to Cultivate a Budgeting Mindset in 4 Easy Steps
How To Manage Debts and Gain Financial Wellness
Once you have created a budget and know how your habit works, the next skill to acquire for financial wellness is debt management skills.
Regardless of your income and goals, you can be reduced to nothing if you fall into debt, or are unable to pay off existing debts.
Here are some of the best strategies to help you manage and pay off debts.
1. Do Not Ignore The Signs, Be Alert
Most financial blogs and websites won’t tell you this, but one of the best ways to avoid falling into debt is by recognizing the signs before you fall into it.
People with huge debts fall into it unaware. If you attend to your busy life while taking out small personal loans or keep maxing out your credit cards, you’ll fall into a deep debt hole.
So, be on alert, always monitor your credit score, and take mental notes of your debts.
Here are some signs that you’re heading towards a life of debts.
- You have no savings or emergency funds.
- If your bills bring you emotional distress
- Depending on debt to pay another
- Frequent overdue notices and text
2. Organize Your Existing Debts
Make a list of all your debts and their interest rate to determine how much you need to pay off. Doing this will enable you to decide on an effective debt repayment plan.
3. Choose A Debt Repayment Method
There are tons of debt repayment methods. But before deciding on a method, make sure it aligns with your personal and financial circumstances.
Some of the best methods to get rid of your debts include:
A. Debt Snowball: This method involves paying off the smaller debts first. And after paying off debts with lower interests, go on to focus on the larger debts.
B. Debt Avalanche: Unlike the snowball method, debt avalanche recommends paying off the largest debts before moving on to smaller debts.
C. Debt Consolidation: This is when you combine all your debts into a single account.
Note: Understand your financial situation to know which method to use.
3. Saving Money Tips: Smart Strategy For Financial Wellness
A saving mindset is important for financial wellness. If you want a financial life of peace and security, be serious about savings.
A saving mindset is when you do everyday things that stabilize your financial life. It is a mindset that allows you to put off temporary desires to achieve long-term goals.
Once you acquire a saving mindset, commitment to a budget becomes easy, and living a debt-free life will become a norm in your life.
Related: 18 Ways To Build Up Your Savings Account
5 Tips To Create A Savings Mindset
If you’re aiming for financial wellness, start by building a savings mindset with these tips.
- Start by setting chunks of short-term goals that lead to the achievement of long-term goals.
- Prioritize savings
- Have a savings partner that encourages you
- Automate your savings
- Track all your savings whether big or small
Saving and Investment
Saving and investment go hand in hand. Rather than let your money accumulate at bank’s interest rates, you can put it into investment to build your wealth.
Investment is important for financial wellness. It enables you to be secure in your future.
Consider investing in a retirement account, high-yield savings account, mutual funds, bonds, stocks, or real estate.
4. How Insurance Can Affect Financial Wellness
Like savings and investment, Insurance acts as a cushion that absorbs your financial losses.
Here’s how insurance is important to your financial well-being.
A. Reduces Risks and Prevents High Costs
Emergencies can occur and can have you scrambling for money. To avoid touching your savings or taking out a loan, get insurance.
For instance, health insurance shields you from the hard impact of medical and healthcare expenses. Auto and home insurance also prevents you from making out-of-pocket expenses
B. Enables Financial Security
Financial wellness implies peace of mind and security in the future. With insurance, you can achieve both.
C. Prevents Debts
Insurance prevents you from resorting to loans or digging into your savings when unexpected costs arise.
5. Seek Professional Guidance For Financial Wellness
Seeking counseling and guidance from experts is one of the best ways to accelerate your journey to financial wellness. With the help of professional guidance, you can make informed decisions and receive support that will aid your financial circumstances.
The job of a financial expert is to analyze your finances and figure out a way to put you on a clear path to financial wellness.
But remember, a financial expert can only do too much. The rest lies in your ability to commit and stay disciplined to the plan laid out by your financial advisor.
6. Financial Goals
Setting a goal is important to your financial life. A well-laid-out plan motivates you to stay committed to whatever budget you plan out for yourself.
So whether it’s savings for a downpayment, paying off a debt, or planning for retirement, set goals!
You do not have to write down your goals. Take mental notes, visualize the steps to achieving the goal, and stay focused.
Be realistic with the goals. If you set big goals, break them down into small milestones to help you stay committed.
Remember to celebrate small wins, and adjust your goals from time to time.
7. Open & Utilize a Savings Account
Here’s a food for thought, if you lose your job today, how many months of expenses can you afford to finance until your savings run out?
Having a savings account is good, but what’s more important is knowing how to utilize the account.
To attain financial wellness, you need to plan for an emergency. So in your budget, specify the amount of money to save each month and enable automatic transfer of the money into a savings account. Create a high-yield savings account to earn interest on your savings.
To be on the safe side, have a 3 to 6-month emergency fund account.
Another Interesting Article: How Many Months Of Emergency Fund Is Enough?
8. Understand Credit Scores
If you plan to apply for a mortgage or car loan, your credit score will decide the interest rate charged on the loan. With a higher credit score, you have access to high loans with small interest rates. However, the opposite is the case for people with a low credit score.
Credit score ranges from 300 to 850. The higher the score, the more trustworthy you are to lenders.
A credit score is calculated based on your repayment history, how much was owed, length of credit history, new credit, and credit mix. If you have a good record on all of the mentioned, you’ll tend to have a high credit score.
Overall, a credit score can make or break your financial life. It affects the amount of down payment required to get a smartphone, cable services, or rent.
Here’s how credit scores are categorized:
- 300–579 = Poor
- 580–669 = Fair
- 670–739 = Good
- 740–799 = Very Good
- 800–850 = Excellent
Thus, if you’re aiming to attain financial wellness, strive for a credit score between 670-850.
Another Interesting Article: How to Clean Up Bad Credit
Why Is Financial Wellness Important?
Creating budgets, setting goals, and saving money to achieve financial wellness doesn’t sound too fun, so why is it such a big deal?
Well, most people with no plans to achieve financial wellness experience a lack of confidence and financial stress in their daily lives.
When you don’t budget, save, or save goals, problems pile up which will negatively impact your self-esteem, physical health, and relationship with people.
Best 5 Financial Wellness Tools
Here are five tools to utilize on your journey to financial wellness:
A. Budgeting Methods, Templates, and Apps
To make the process of budgeting easier, make use of budgeting apps. Regardless of your financial situation, there’s a suitable budgeting app for you.
There are also tons of budgeting rules and techniques to employ during budgeting. Some of these include:
- Will the 30-30-30-10 Budget Rule Work for You?
- How the 50/30/20 Budget Example Can Work for You
- Understanding the 60-20-20 Budgeting Rule
Another Interesting Article: 9 OF THE BEST BUDGETING APPS
B. Credit Monitoring Apps
Use applications like MyFICO, Credit Karma, CreditWise, Experian, and Credit Sesame to track your credit score and detect inaccurate information on your credit reports.
C. Cash Back Apps
Save more on groceries and other items with a cash-back app. Most of these apps show stores offering discounts and coupons. Take advantage of this to cut down on your expenses and save more.
Conclusion
The journey to financial wellness never ends. It’s a path that requires consistency and commitment. When you achieve your goals, do not back down, keep saving, setting budgets, and staying away from debt.
