We’ve all heard the term “financial wellness,” but what does it really mean? Is it just about having a well-padded savings account or knowing how to budget? It’s much more than that.
Financial wellness is a holistic approach to managing your money in a way that reduces stress, promotes well-being, and helps you achieve your goals—both big and small.
In this guide, we’ll dive deep into the world of financial wellness, explore why it’s so much more than just saving money, and share some practical steps to help you achieve it.
What Exactly is Financial Wellness?
To put it simply, financial wellness refers to the state of your overall financial health and well-being. It’s about having control over your day-to-day finances, being able to meet both short- and long-term financial goals, and feeling secure about your future. It’s not just a single number in your bank account or a well-balanced budget—it’s a feeling of confidence and peace when it comes to your money.
Think of financial wellness as physical wellness. Just like maintaining good physical health requires more than eating a salad once a week, achieving financial wellness involves more than just stashing away some cash. It’s about finding a balance that works for you and your lifestyle, addressing all aspects of your financial life, and, most importantly, eliminating financial stress where possible.
"Financial wellness is the ability of people to lead a successful financial life." — Drew Pratt, a CFA and Vice President of Investment Advice
Key Elements of Financial Wellness
To help you understand what financial wellness encompasses, here are its key components:
- Financial Control – Do you feel in control of your money, or does it control you? Financial wellness starts with the ability to manage your income, expenses, debt, and savings effectively.
- Goal Setting – Financial wellness includes having clear short-term and long-term goals, whether that’s buying a house, paying for a vacation, or retiring comfortably. It’s about making a plan to get there.
- Resilience – Life happens. Whether it’s a car breaking down, a medical emergency, or an unexpected job loss, financial wellness means having a plan (like an emergency fund) to handle these curveballs without falling into debt or financial despair.
- Financial Security – This is about feeling secure in your ability to meet current and future financial needs. It means having enough saved for emergencies, retirement, and other important goals.
- Money Mindset – Lastly, financial wellness involves having a healthy relationship with money. Your mindset—how you feel, think, and make decisions about money—plays a big role in your financial health. A positive money mindset fosters smart decision-making and reduces financial anxiety.
Why Financial Wellness is More Than Just Saving Money
You might be thinking, "Isn’t saving money the backbone of financial wellness?" Well, yes—and no. Saving money is definitely a huge part of being financially healthy, but it’s not the only piece of the puzzle. Let’s break down why financial wellness goes beyond saving money.
1. It’s About Having a Plan
Saving is great, but if you don’t have a clear plan for what you’re saving for, it can feel aimless. Financial wellness includes knowing why you’re saving and what you’re working toward. Without goals, you’re just collecting money for the sake of it, which doesn’t lead to a feeling of fulfillment or security.
Are you saving for a down payment on a house, building an emergency fund, or planning for retirement? Financial wellness gives you the clarity to set clear financial goals and make a plan to achieve them. It’s about creating a roadmap that aligns with your life plans—whether that’s owning a home, traveling the world, starting a business, or retiring early.
2. Reducing Financial Stress
Here’s the thing: saving money won’t automatically reduce financial stress. Many people save religiously but still feel anxious about their finances because they haven’t addressed other critical areas like debt management, budgeting, or their financial mindset.
According to a Bankrate survey from March 2024, nearly half of U.S. adults (47%) reported that financial concerns negatively impact their mental health, causing stress.
Financial wellness involves managing all aspects of your finances—spending, saving, debt, and investments—in a way that reduces stress and anxiety. When you have a holistic plan, you're less likely to feel overwhelmed, even when unexpected expenses pop up.
3. Balancing Now vs. Later
Many of us focus so much on saving for the future that we forget to live in the present. Financial wellness is about finding a balance between saving for long-term goals and enjoying life today. After all, what’s the point of financial stability if you’re constantly stressed or deprived?
Being financially well means you can treat yourself occasionally (within reason!) while still making progress toward your larger goals. It’s the balance that keeps you motivated and helps you avoid burnout.
4. Protecting Yourself from Life’s Curveballs
Saving is important, but so is protection. Financial wellness includes safeguarding your future through things like health insurance, life insurance, and an emergency fund. Many people overlook these critical areas because they think, “It won’t happen to me.” But the truth is, unexpected events—whether a medical issue, a car accident, or an unexpected job loss—can derail even the best financial plans.
A big part of financial wellness is making sure you’re covered for life’s what-ifs so that an emergency doesn’t send you spiraling into debt or wiping out your savings.
The Benefits of Achieving Financial Wellness
Achieving financial wellness can transform not only your financial life but also your mental and emotional well-being. Here’s how:
1. Less Stress and Anxiety
Money is one of the biggest sources of stress for many people. Achieving financial wellness can significantly reduce that stress because you know you have a plan, you’re prepared for emergencies, and you’re working toward your goals. No more sleepless nights worrying about whether you’ll have enough money to cover the bills!
2. Greater Confidence in Decision Making
When you’re financially well, you’re able to make decisions with confidence. Whether it’s deciding to make a big purchase, invest in your future, or take a leap and start your own business, having control over your finances means you can make decisions without fear.
3. Financial Freedom
Financial wellness may not mean being wealthy, but it does mean being free from the constraints of financial worry. It’s the freedom to pursue your goals, take risks, or change direction in your life without money being a constant concern.
4. Improved Relationships
Money can be a major source of tension in relationships, whether with your spouse, family, or friends.
Achieving financial wellness helps alleviate this tension because you’re in control of your finances, you’re not living paycheck to paycheck, and you have a plan for the future. This can lead to more harmonious relationships and fewer arguments about money.
Steps to Achieve Financial Wellness
Reaching financial wellness isn’t out of your grasp! Here are six practical steps to get you started:
1. Create a Budget That Works for You
Budgeting doesn’t have to be restrictive. It’s more about guiding your money toward what truly matters to you. Start by tracking your spending for a month to see where your money goes, then create a budget that fits your goals—whether it’s saving for the future or paying off debt—while leaving room for enjoyment.
Whether you use the 50/30/20 rule, zero-based budgeting, or another system, find what works for you and stick with it.
2. Build an Emergency Fund
Life is full of surprises, and having an emergency fund gives you a financial buffer for the unexpected. Aim to save three to six months’ worth of living expenses in a liquid account. Start small if needed, but make this a priority to avoid going into debt when unexpected costs arise.
3. Pay Off High-Interest Debt
Debt can hold you back from achieving financial wellness. Focus on paying off high-interest debt, such as credit card balances. You can try the avalanche method (tackling the highest interest debt first) or the snowball method (starting with your smallest debt for quick wins). Whichever method you choose, reducing your debt will free up resources and reduce stress.
4. Set Clear Financial Goals
Financial wellness means more than just getting by—it’s about achieving your dreams. Set clear, specific goals, whether it’s paying off debt, saving for a house, or planning for retirement. Break them down into small, achievable steps and track your progress.
5. Invest in Your Future
While saving is important, investing helps grow your wealth over time. If you haven’t already started, now’s the time to look into retirement accounts like a 401(k) or IRA. Thanks to compound interest, the earlier you start, the better.
6. Protect Your Financial Well-Being
Make sure you’re covered with the right insurance, such as health, life, and disability insurance. These can safeguard your financial well-being when unexpected events occur, ensuring you and your loved ones are protected.
Conclusion
Achieving financial wellness isn’t about hitting a specific number in your bank account or following a strict budget. It’s about creating a balanced and sustainable relationship with your money—one that allows you to live comfortably, pursue your goals, and handle life’s surprises without financial stress.
Remember, financial wellness is a journey, not a destination. It evolves as your life changes, and it’s something you’ll need to revisit and adjust over time. By taking small, consistent steps toward managing your money more effectively, you’ll not only improve your financial situation but also experience greater peace of mind, freedom, and overall well-being.
Whether it’s building your emergency fund, paying off debt, or simply creating a budget that works for you, each step you take will bring you closer to financial wellness.
