What is Financial Wellness
Financial wellness can only be achieved by being aware of your financial situation and managing it effectively. Like all other dimensions of wellness, financial wellness is intertwined with the others. Not being aware of or managing your money poorly can have negative impacts on other areas of your life.
I will be the first person to tell you that your life shouldn’t revolve around money. It’s not healthy to constantly chase money in order to buy the stuff you don’t need (we all know the saying money doesn’t buy happiness.) At the same time, I can not stress how important it is to have enough money for what you need and to have a safety net for when things go wrong.
If you don’t have money, you can’t afford good food, health, and you’ll have stress. At the same time, it’s important to recognize when you’re spending too much time focusing on money and should focus on other areas of your life. It’s all about achieving balance.
I am really grateful I learned about finance early and that my parents were able to support me until I was 20. This has helped me learn what good and bad habits are when it comes to financial wellness. I’m gonna share what works for me.
These are the 5 rules I follow for good financial wellness:
- Pay off and avoid debt
- Limit mindless spending
- Track my spending
- Create (and follow) a budget
- Have savings
Pay Off and Avoid Debt
It’s really easy to get sucked into buying things we can’t afford. Financing programs are a trap, to sell us stuff we can’t afford and don’t need. They encourage constant upgrading to the next new thing and commit us to spend time in the rat race.
Also, you don’t want to end up in a position where you have payments to make but an inadequate source of income. It’s much better to be patient and save until you can afford to pay upfront for what you want.
Limit Mindless Spending
Being aware of where your money goes is important when you want to keep a budget. Do you know the feeling of checking your bank balance and wondering where all your money went? That’s exactly what I mean. When we’re not thinking about our purchases it’s all too easy to fritter away money. (It’s also really easy to eat out too often and to accumulate stuff which isn’t good for us or the environment when we’re not being conscious of our spending.)
Tracking your spending and having a budget can help you avoid mindless spending if you’re conscious of it.
Track Your Spending
The best way for me to track my spending is to write down every purchase I make. Before I had online banking, I would have to go to the atm to check how much I had in my account. I would then write down every purchase in my bullet journal and I would write the balance left in my account.
Even with my online bank app, I still take time to record individual purchases in my bullet journal, and at the end of the month, I total the amount I spent in different categories. This gives me an overview of how I am spending my money.
My system is not perfect, but I think the act of taking the time to record each purchase makes me more conscious about my spending habits. And that’s a good thing.
Create a Budget for Yourself
When you have a plan of how much you want to spend, you’ll work within the limits you have set. Similarly, if you don’t set a budget, you don’t hold yourself accountable.
Of course, sometimes our lives are hectic and we can’t always predict costs. My solution to this is leaving a little money left over for incidentals.
How to Create a Budget
- List all your fixed weekly/monthly/yearly costs
- List all your sources of income and how much you expect to get
- Determine where your money goes
- Set goals for how much you want to spend in each category
- Set money aside for saving
- Set money aside for incidentals
It’s important to be expecting and to be aware so there are no surprises, especially since many of these costs may be automatically withdrawn which could cause you to overdraw if you don’t have enough money in your account.
You need to know what you’re working with.
This should be done by tracking your spending for a few weeks or months. You should be able to organize your spending into broad categories. My categories include groceries, dining, entertainment, technology, school, household, drug store, clothes. Depending on what you usually buy, it may be helpful to have other categories; makeup, sports, gardening, art supplies, games, alcohol, if you spend a lot of money in a niche category, you may want to track that separately from the rest of the broader category.
In part how much you plan to spend will be influenced by what you’ve spent in the past, but this is also a good place to challenge yourself to spend less and to be more thrifty.
I like to put money into savings as soon as I get my paycheque so it’s like it never existed. Then I go on business as usual. I also try to avoid dipping into my safety net except when it’s absolutely necessary.
Of course, one of the categories you allocate money to should be for incidentals, which are any expenses that come up unexpectedly. This way you don’t have to dip into your savings when something pops up.
The Importance of Saving
One time my mom remarked on the amount of money I had in my chequing account. I don’t remember exactly what she said, but I remember her mentioning how she and my Dad always try to keep a certain amount of money in their chequing account for emergencies. Ever since then, this has been a baseline I try to keep on hand.
I’ve had the experience of having no money in my bank account. It’s a very tense and anxious way to live; that’s not good for our bodies or our minds. That’s why keeping a safety net of money is really important to our financial wellness.
Additionally, if you’re a student or are otherwise subject to fluctuating employment, by living below your means while employed and saving money you will have more security when you’re in between jobs.
Instead of arbitrarily choosing a number like 2k, consider looking at your budget and determining how much you’d need to support yourself without and income for 3 months. Then, once you have that much saved, you can increase your emergency und to 6, 9, 12 months.
Although this requires a more detailed post, I want to briefly mention the importance of investing. A traditional savings account will have a fairly low-interest rate (this is the percentage your bank pays you for saving money with them). The benefit of these savings account is that your money is safe from whatever happens to the market and can also be withdrawn quickly.
When you’re saving money, especially for a long time, you want it to grow. This is where investing in a high-interest savings account, stocks, and accounts like a TFSA and RRSP (for Canada) or a 401k (for the United States) is important. This all requires a longer post though.
Having a lot of money won’t make you happy. But not having enough money will make you unhappy, stressed, and unhealthy. Poor financial wellness leaks into the other areas of your life to hinder your success. Likewise, good financial wellness can set a strong foundation for your other activities.
Let me know in an email if I missed any tips that have worked for you. If you found these rules helpful, I’m writing a series of ways to improve each dimension of wellness. You can start by reading about what exactly wellness is, and my 9 tips for working on intellectual wellness.