What Is Financial Wellness? Definition and Tips

Lyle Daly
Natalie Taylor, CFP®, BFA™
What Is Financial Wellness? Definition and Tips

Many people don’t have a good relationship with money. They’re unsure of how to manage it, and that leads to stress and uncertainty. That’s a difficult situation to be in, but fortunately, you can solve it by focusing on your financial wellness. 

But what is financial wellness? In this guide, we’ll answer questions like:

  • What does financial wellness mean?

  • How can you develop habits that build financial wellness?

  • What’s the best way to secure your financial future?

  • How can you feel better about money?

What Is Financial Wellness?

Financial wellness is when you feel comfortable and secure about your finances. You understand your financial situation and what you’re working toward. You have a strong foundation providing financial security, and you’ve established habits that will help you maintain and build on your success.

Financial wellness is sometimes called financial wellbeing or financial peace.

Benefits of Financial Wellness

There are many reasons to work toward financial wellness. So, what are the financial wellness benefits? Here are the most important:

  • Less stress about money

  • Confidence in your financial situation

  • Faster progress toward your financial goals

  • Better work-life balance

What Is a Financial Wellness Program?

A financial wellness program is a plan that puts you in control of your finances. There are two parts of achieving financial wellbeing. First, understand where you are and where you’re going. Then create a strong foundation of good financial habits that you can follow consistently.

To better explain these, let’s look at each in detail so you can put them into practice.

1. Know Where You Stand With Money

Financial wellness starts with an awareness of where you stand with money. Evaluate your current financial situation to see what you’re doing well and where you could improve. Here are a few questions to ask yourself that can help:

  • Are you spending less than you earn? If not, you’ll need to fix this first, either by reducing your spending, increasing your income, or both. Budgeting is your most powerful ally here, and it’s a lot easier than you may think.

  • Do you save money every month? This is an important habit to get into so you can work toward savings goals, such as an emergency fund and a down payment on a home. Budgeting helps with this task, too.

  • Is your debt under control? The ultimate goal is to have no debt, but low-interest debt, such as a mortgage, is normal. You should pay off high interest debt as quickly as possible. This is another area where budgeting can help.

  • Are you investing to build wealth for the future? Investing can help you grow a nest egg for retirement and a college fund for your children. It’s easy to start investing

Once you have a handle on your finances, you can figure out your goals, and then plan what you need to do to reach them. The Monarch Money app can help. It lets you add all your financial goals and track your progress toward them by connecting your accounts.

Let’s say you want to buy a home, so you set a goal of saving $100,000 for a down payment. You could go to the Goals section in your Monarch Money profile, choose “Add goals,” and then add your goal of $100,000 for a home. After that, you can connect the bank account you’re using for the down payment and keep track of your progress. You can add as many goals as you want, making it easy to track all of them in one place.

2. Build a Strong Financial Foundation

A strong financial foundation keeps you ready for any emergencies and issues, and it gives you a starting point that you can build from. Here’s how to build your financial foundation.

Follow a Budget

It’s important to be in control of your money, and for that, you need to know where it’s going. A budget allows you to make a plan and align your spending with your values.

To make a budget, start by finding your net income, which is your take-home pay - unless you’re self-employed. Next, list all your expenses, including fixed expenses that stay the same every month, flex expenses that vary, and non-monthly expenses. Set weekly spending limits for yourself, and decide how much money to commit towards your financial goals.

Pro Tip: Check out our guide to why budgeting is important to learn more, including how to make a budget of your own. Remember that Monarch Money has budgeting tools you can use to make your own customizable budget.

Make an Emergency Fund

An emergency fund is your backup plan in case disaster strikes. Everyone faces unexpected financial issues, so an emergency fund is a must.

If you don’t have an emergency fund yet, make a savings account specifically for this purpose and set up automatic transfers. Set a goal of saving one month’s take-home pay to start. After that, you can aim for a full emergency fund of three to 12 months’ take-home pay, depending on your needs.

See our full guide to emergency funds: How Much Emergency Fund Should I Have?

Pay Off High Interest Debt

Because of how expensive high interest debt is, try to pay extra so you pay it off more quickly. If you have large balances on your credit cards, check out our guide to how to pay off credit card debt. Prioritize paying off debts with higher interest rates first, to save money on interest payments. Then work your way down from there.

Purchase Insurance

Like an emergency fund, insurance is important to protect against unexpected losses. While there are many types of insurance, here’s what to get first:

  • Health insurance

  • Renters or homeowners insurance

  • Auto insurance

  • Disability insurance

  • Life insurance

Invest Regularly

The best way to grow your money is to invest it. If you invest regularly, especially if you start young, this pays off. To give you an example, if you invest $1,000 per month in the stock market for 30 years and earn a reasonable 8% return, you’d end up with over $1 million.

Aim to invest at least 10% of your income. This is a great way to put yourself on track for retirement and to accomplish other long-term goals.

Take Care of Your Credit Score

Your credit score is how lenders and other third parties assess your creditworthiness. If you build and maintain a good credit score, you’ll qualify for lower interest rates on loans, including mortgages and auto loans.

To raise your credit score, always pay your bills on time and avoid debt when possible, especially credit card debt. A good rule of thumb is to keep your credit card balances to under 30% of your credit limit. For example, if your card has a $20,000 credit limit, keep your balance under $6,000 at all times.

Pro Tip: Your credit score is a factor of your total available credit vs. total utilization, not on an account-by-account basis. So if you have one account with a $20,000 max and one with a $50,000 max, you could actually max out the first account without bringing your overall usage above the 30% threshold.

Don’t forget to Have Fun

Personal finance shouldn’t be all work and no play. Don’t be too strict with yourself. Set aside a portion of your income in your budget as fun money. This is yours to use however you want, and since you’ve already set aside money for all your bills, saving, and investing, you can spend this fun money guilt-free.

Build a Better Relationship With Your Finances

By practicing financial wellness, you’ll not only be in better control of your financial situation. You’ll feel better about it, too. Monarch Money can help you along the way with tools to better manage your money and speed up your progress toward your financial goals.

Lyle Daly Personal Finance Writer
Natalie Taylor, CFP®, BFA™ Head of Financial Advice at Monarch

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