Financial wellbeing is one of the most important contributing factors to an individual’s overall wellbeing. Many people around the world suffer from chronic financial stress and that can have a significant impact on their mental and physical health. The good news is that programmes are being introduced around the world to address this issue by improving levels of financial literacy and boosting their financial wellbeing.
In this article, we’re going to take a look at what it means to be ‘financially well’ and introduce the five pillars that we can put in place to boost our financial wellbeing.
What is financial wellbeing?
You are in a state of financial wellbeing when you can meet your current and ongoing expenses, are secure in your financial future and can make decisions about how you spend your money that allow you to live your life to the fullest.
Very simply, financial wellbeing occurs when you feel calm and secure about your financial situation. There is no specific amount that you must earn or have in your bank account to be considered ‘financially well’. Instead, it is tied to an individual’s unique situation and their own sense of financial confidence and stress.
Financial wellbeing does not always go hand in hand with a high level of income. There are many individuals and families with modest levels of income who have enough money to meet their needs and are financially secure. Many others earn high incomes but have expensive assets to maintain, high levels of debt or a quality of life they aspire to that ultimately leaves them feeling financially insecure.
Levels of financial wellbeing
Levels of financial wellbeing in many countries around the world are currently on the decline. A recent report by Wonga.co.za into financial wellbeing in South Africa found that unhealthy financial priorities, such as wanting to own luxury cars and multiple properties despite financial constraints, was damaging overall levels of financial wellbeing. You can read the full report on their blog.
In the UK, a 2019 report by the Royal Society of Arts, found that levels of financial wellbeing were falling. It found that 36% of the working population would struggle to pay an unexpected £100 bill, while 30% felt they didn’t earn enough to maintain a decent standard of living.
The five pillars of financial wellbeing
With a backdrop of falling financial wellbeing, it’s important that we develop a deeper understanding of what financial wellbeing is. We can then take the necessary steps to try to improve it. The five pillars of financial wellbeing are:
- Having a manageable level of stress when it comes to current and future financial matters.
- Having no debt at all or a level of debt that can be repaid without incurring a financial penalty that will harm your financial position or cause you significant stress.
- Earning enough disposable income to maintain a desirable lifestyle that’s within your means.
- Maintaining an emergency savings fund that is sufficient to sustain your lifestyle if you were to lose your primary source of income for at least three months.
- Having the financial literacy to be able to set appropriate financial goals for the future and plan realistic ways to reach them.
How many of the five pillars of financial wellbeing can you tick off and what successful steps have you taken to improve your financial position in the past? Please share your thoughts with our readers in the comments below.