Financial wellness is important because it shows you have control of your spending and debt. It also indicates you have enough money saved up and can handle any financial crisis or event that may come your way. Let’s take a closer look at what financial wellness is and what you can do to improve your personal financial wellness.
What is financial wellness?
Financial wellness is the ability to lead a healthy financial life, including the ability to build and stick to a budget, understanding financial terms to evaluate offers of credit or loan, and creating a plan for the future to protect against emergencies and support your retirement.
Components financial wellness?
Once you achieve financial wellness, your finances will be more secure and you’ll be able to more effectively manage your money. Here are some factors that can determine your financial wellness:
- Staying within your budget
- Keeping track of all expenses
- Being financially prepared for unexpected costs
- Having a plan to achieve your short-term and long-term financial goals
- Having the right knowledge and information to make good financial decisions
Benefits of financial wellness
There are a number of key benefits to financial wellness, which include:
Achieve short-term and long-term financial goals
Financial wellness is important for everyone, as it can help people achieve short-term and long-term financial goals. For example, if you are trying to save up for a down payment on a house, financial wellness can help you stay on track and make wise choices with your money.
More financial options
In addition to helping people achieve their financial goals, financial wellness also gives people more financial options. This can provide greater flexibility and choice when it comes to making decisions about spending and saving. For example, if you have a good financial foundation, you may be able to qualify for a lower interest rate on a mortgage.
Peace of mind
One of the greatest benefits of financial wellness is the peace of mind that comes with it. When people are financially well, they often feel less stressed and anxious about their financial situation. This can lead to improved mental and physical health.
Financial wellness vs. financial literacy
Financial wellness and financial literacy are two terms that are often used interchangeably, but there are some key differences between the two. Financial literacy is about having the knowledge and understanding of financial concepts. This includes topics like budgeting, saving, investing, and credit. Financial literacy is important because it gives people the ability to make sound financial decisions.
Financial wellness, on the other hand, is about more than just financial knowledge. It's about having a healthy relationship with money. This means making choices that lead to financial stability and security. It also means knowing how to manage stress and anxiety around money.
Why financial wellness is important
Financial wellness can help you define and achieve your long-term financial goals, whether you want to retire early, buy a house, or be debt-free. With financial wellness, you can create a plan to save and budget in your daily life so that you can reach financial milestones in the future. Having the right financial strategy in place can also help you prepare for whatever life throws your way, so that you’ll be able to get out of a financial bind more easily.
How to tell if you have financial wellness
Having financial wellness means you have control over your expenses, are building up your savings, and are prepared for financial emergencies that may come your way. If you’re able to manage your day-to-day financial situation well and are actively working toward long-term financial goals, you may be financially healthy. And if you don’t have all your finances in order yet, it’s never too late to start.
Review your credit to improve financial wellness
Credit is an important part of your financial life and financial wellness. Lenders and creditors will look at it to determine how risky of a borrower you are. Most of them will consider your FICO credit score, which is made up of these factors:
- Payment history
- Total amount of debt you have
- Diversity of your credit accounts
- Length of your credit history
- How many recently opened accounts you have
Bad credit or a low credit score could prevent you from getting approved for a loan or credit card. It can also leave you with higher interest rates that cost you thousands of extra dollars.
Fortunately, there are some ways you can build a positive credit history and increase your credit score to improve financial wellness. Here are some ideas to get you started.
Take out a credit-builder loan
A credit-builder loan, designed for those with no credit or bad credit, is secured by a deposit. Once you pay off the loan in full, you’ll get the deposit back. By making regular payments on the loan, you’ll be able to establish a positive credit history.
Open a secured credit card
Like a credit-builder loan, a secured credit card requires you to put down a deposit. Your credit limit on the card will be no higher than this deposit amount. As you spend and promptly pay what you owe, you can watch your credit score rise.
Become an authorized user
Becoming an authorized card user may be easier than opening your own card account, but there’s a catch. In order for this approach to build your credit, the other person's credit card company must report your payment history (as an authorized user) to the credit bureaus.
The amount you've borrowed is the second-biggest component of your credit score. Keep your total debt at a manageable level by only borrowing—or, in the case of a credit card, spending—what you know you can pay back.
Pay off your debts on time
Making on-time debt payments is the single best thing you can do for your credit. Once you have a credit card or loan in your name, commit to making at least the minimum payment every month. After six months to a year of positive payment history, your credit score can improve significantly.
Build a budget to improve financial wellness
A budget is a plan for what you’ll do with your money. If you create and stick to a budget, you’ll find it easier to meet your spending and savings goals and improve financial wellness. Since there are a variety of budget options out there, it’s important to choose one that works well for your unique lifestyle. Several of the most popular budgets for financial wellness include:
With a line item budget, you list out your expenses for an entire year. As you go through the year, compare current expenses to previous ones to make sure you’re on track. If you use this technique, don’t forget to add a savings line item to your list of expenses. This way you’ll remember to save.
Pay yourself first
Pay yourself first is where you devote a certain percentage of your income towards savings as soon as you get your paycheck. If your priority is saving money, rather than tracking expenses, it’s worth considering. It will ensure you save before you spend.
The envelope budget allows you to physically allocate set amounts of cash to budget categories like gas, groceries, and restaurants. With this method, you keep dedicated pools of money in different envelopes. Once an envelope is empty, you can no longer spend in that category for the month.
With the zero-sum budget, you assign each dollar of your monthly after-tax income a “job”. This budget can help you figure out what is most important to you and make the most of your cash. It’ll also encourage you to treat your savings and investments just like your other expenses.
Create a savings and investment plan for financial wellness
Saving for emergencies and investing for the future is a large component of financial wellness. With an emergency fund of 3 to 6 months’ worth of expenses, you’ll be prepared for an unexpected expense like a car repair or medical bill.
An emergency fund can help you avoid debt and give you some much needed peace of mind. To build one, sell items you no longer need or want, pick up a side gig, and reduce your expenses. Remember to replenish your emergency fund every time you use it.
Once you have adequate emergency savings, it’s time to focus on investing. If you don’t already have one, open a retirement account like a 401(k) or ROTH IRA. Contribute to it every month so that when you hit retirement age, you’ve built a substantial nest egg.
When should I get started on financial wellness?
Many financial experts agree that it's never too early or too late to start working toward financial wellness. The earlier you start, the more time you'll have to build up your savings and make wise investment choices. Even if you're not in a financial crisis, it's important to start making smart financial decisions that will benefit you in the long run.
4 types of loans to meet your financial needs
If you are still working toward financial wellness and need money now to cover your financial needs, here are 4 loans to consider:
Payday loans are short-term, small dollar loans that can give you extra funds to cover expenses before your next payday. You’ll typically repay these loans in 2 to 4 weeks, depending on when you get your paycheck.
Installment loans give you a lump sum of money all at once that you can pay back over time in fixed monthly payments, or installments. This type of loan may be a good option for borrowers who need a larger amount of money to cover emergency or essential expenses.
Title loans are secured loans that let you use your car’s title as collateral to receive cash. The lender will offer you a loan amount worth 25 to 50% of your vehicle’s value, and you can keep driving your car as you repay the loan.
Lines of Credit
A line of credit is a flexible loan that lets you use funds as needed up to your set credit limit. You can pay back this loan all at once or over time, and will only pay interest on the amount you borrow.
Get financial help today
Saving up money to improve your financial wellness takes time. If you haven’t created an emergency fund or don’t want to tap into it yet, and need money to cover expenses now, Advance America can help. From Payday Loans and Installment Loans to Title Loans and Lines of Credit, we offer a variety of options to meet your financial needs. You can fill out an application online or in-store and get a decision from us, all in a matter of minutes. Best of all, you don’t need good credit to get approved.