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A good definition of financial wellbeing has been difficult to pin down, but it’s something we certainly can identify when it is lacking. Importantly, people can experience financial wellbeing—or a lack of it—regardless of their level of income. Therefore, it’s a highly personal and individual state of mind and emotions, not fully covered by numerical measures such as salary level or bank balance. Instead, well-being is defined as having financial security and financial freedom of choice, in the present and in the future.

What is Financial Wellbeing? - rowing boat on clam waters image
Photo by Johannes Plenio from Pexels

A student can therefore experience well-being by feeling in control of their income and expenditure, without necessarily having a significant net worth. Conversely a millionaire who is constantly worried about security or maximising his or her returns less so.

So, are we solely talking emotions here or something more tangible?

A report commissioned by Consumer Financial Protection Bureau surveyed consumers and finance industry professionals to find out what financial well-being means to them. It revealed four elements covering the present and future.

In the present, financial security was paramount, including control over day-to-day and month-to-month finances, without money stress and worry. Another significant short-term factor was the financial freedom to make spending choices to enjoy life.

Looking to the future what was most important was having the capacity to absorb a financial shock, such as losing a job or serious illness. Whilst financial freedom meant being on track to meet financial goals.

In my view, it may be possible to apply figures to financial wellness after a little investigation and planning.

For example, “I’ll be happy when I have more money” is not a well-defined goal. Would picking up a penny in the street count as extra money?

Or “I need to win the lottery to live the lifestyle I desire” is that accurate? Do you know how much that lifestyle would actually cost?

In a 2020 mint.com survey 65 percent of Americans said they don’t know how much they spent last month. It’s little wonder therefore that the average American overspends by $7500 per year.

It is difficult to know how much money you need or want when you don’t know how much you spend right now.

How to improve financial well-being

A starting point is to gain full awareness of where you are, financially speaking, and where you would like to be.

Most people have a pretty accurate knowledge of how much they earn, but as shown in the mint survey above, only 35% typically know how much they spend.

Banking apps can help if you lack the discipline of noting down everything you spend. The switch to cashless payments also allows easier tracking from your bank statement or online account.

Step 2 is to automate and simplify as much as possible. Many people miss deadlines on bills or credit cards just because they have too much going on. Build systems to streamline your finances.

Continuing the alphabet theme, step 3 is C for Credit Score. A high proportion have errors on their credit report often resulting in borrowing becoming more expensive. By checking and improving your credit file you can potentially save a significant amount whilst regaining some control over your finances.

Finally step 4 is to deal with your Debt. If you are carrying loans and credit card debt this can be a drain on your finances and erode your future prosperity. Fortunately, at Fearless Finance we teach proven systems to eliminate debt which can make you feel better about your money and increase your financial well-being.

Visit fearlessfinance.co for courses and coaching to improve your financial wellness