We often hear about physical wellness and mental wellness. If you’re thinking financial wellness simply means having a lot of money, think again. The concept is more comprehensive and subtle than that.
Financial wellness is about creating a healthy economic life that aligns with your needs, your values, and your goals. It is about understanding and effectively managing your economic life for both short-term financial security and long-term financial stability. It isn’t just about being rich, but about feeling secure and in control of your finances, whether your income is large or small.
Despite the growing conversation around financial wellness, several misconceptions persist. Understanding these is the first step towards demystifying financial wellness and making it a more achievable goal for everyone. While wealth can help to provide financial security, it’s not a guarantee of financial wellness. That’s about your relationship with money; your ability to manage financial resources, make informed decisions, feel secure in your financial future, and have the freedom to enjoy life (not just spending recent savings on trips & holidays!).
Someone with a high income but poor money management skills might not be financially well. Conversely, someone with a modest income but excellent budgeting and saving habits might be very financially well. The key is balance and sustainability.
The cornerstones of financial wellness are rounded critical thinking skills and basic financial literacy. They empower you to understand and interpret information, make informed decisions, and be proactive about your financial health. So, while financial wellness might initially seem to be all about dollars and cents, it’s really about the peace of mind that comes with financial stability and the confidence with informed, balanced decisions.
The Components of Financial Wellness
Earning: A stable income is fundamental to achieving financial wellness because it forms the base upon which all other financial decisions are made. Without a consistent income, it becomes challenging to plan for the future or meet daily needs.
Saving: Savings serve as a financial buffer against unforeseen expenses and life’s many uncertainties. But saving goes beyond just stashing money away in a bank account. It also involves investing or making your money work for you. The dangers are that you can take too much risk, but you can also take too little or no risk. One of our challenges can be convincing clients who have spent decades saving to a deposit account that now is the time to extend their allocation habits, which sometimes involves increased spending! Speculate to accumulate. The “what is a cost versus what is in an investment” question.
Spending: While spending is a necessity, it becomes problematic when not managed responsibly. Developing good spending habits involves living within your means, avoiding unnecessary debt and making sure your spending aligns with your financial goals; informed, deliberate decisions about where your money goes, every day.
Protecting: Building an emergency fund to provide a financial buffer for short term costs and ensuring you’re prepared for longer-term issues through types of insurances protects your goals, with or without you. Insurance can often be overlooked, misunderstood or simply ignored inappropriately, which can sadly create disastrous situations. Take care to consider carefully and not leave yourself or loved ones exposed.
Physical health: Financial insecurity often comes with a heavy price tag for our physical health. Chronic stress, associated with persistent financial worry, has been linked to a host of health problems, from heart disease and high blood pressure to diabetes and sleep disorders. This stress can also lead to unhealthy coping behaviours, such as overeating, smoking, or excessive alcohol consumption. Achieving financial wellness can alleviate this stress, contributing to better health outcomes and improving your overall quality of life. This physical, financial “relationship” sometimes needs a positive jump start or push from external sources.
Relationships: Financial issues can also put a strain on personal relationships. Money-related disagreements are a common source of conflict among couples and can lead to tension, resentment and even breakups or divorce.
The path to financial wellness is a journey, not a sprint. It requires time, patience, discipline, and ongoing learning. Making consistent, informed financial decisions, adapting to changes in your financial situation, and continuously striving to improve your financial habits. True financial wellness, like keeping fit, becomes a lifestyle habit. It is a holistic, multifaceted concept that goes beyond simple wealth accumulation or saving. It’s a journey that requires discussion, agreement, flexibility and a balanced approach to managing many aspects of your life.