What is Financial Wellness? Why Money Management is Important to Your Overall Health

I’ve been financially well, and I’ve been stretched thin. Believe me, the former is so much more comfortable than the latter. Sure, there’s the relief in knowing you can pay your bills, but of equal importance is the energy to engage with things other than money. 

When you have your finances under control, you can create the life you want instead of treading water in catch-up mode. That’s what financial wellness is all about — enabling you to breathe easy and plan for the future without stress clouding your decisions. 

Financial wellness is the ability to manage your money effectively, cover expenses, reduce debt, and save for the future without excessive stress.

I’ll dive into why financial wellness is so critical, the key elements that keep your money in check, and the steps you can take to strengthen your finances.

I have trouble sleeping soundly when I’m fretting about money, and I’m sure that’s true for countless others. Who wants to worry about each bill and unexpected expense? 

I aim to live my life instead of just making ends meet. Financial health is so much more than dollars and cents — its influence goes into your peace of mind, your potential, and even your health. 

Less Stress, Greater Liberty

Financial stress is a threat to your overall well-being — physical and emotional. Anxiety will rob you of sleep, sap your energy, drain away happiness, and raise your blood pressure. But just earn a little financial security, and you start to relax. 

I know my mood gets much brighter when I have enough resources to manage expensive crises and pursue interesting opportunities. Sounds like a good goal, eh?

Enhanced Access to Economic Opportunities

When you’ve lived through tough financial times, you don’t take access to credit cards and loans for granted. Lenders are hard-nosed businesspeople who aren’t eager to hand out their best rates and terms to folks with poor credit or meager resources. 

If you want viable options, you’ve got to build or rebuild your financial health and credit score.

Being financially sound makes it easier to make investments, buy a car, or even try your hand at starting a small business. It’s wonderful to see the doors open when debt and inferior credit don’t weigh you down.

A Better Way of Living

Your lifestyle is your daily dose of reality. When your finances are in the dump, your lifestyle takes it on the chin. It’s much nicer when you’re not living paycheck to paycheck. It frees you up for growing, experiencing, learning, and setting long-term goals. 

Financial health lets you live your life as you desire, whether it’s vacationing, starting a new hobby, or enjoying a comfortable retirement.

Humans have the ability to think, and what we usually think about first is ourselves, especially during dark times. But when you’re financially secure, the benefits extend beyond your personal life. 

Becoming less anxious can translate to better relationships and energy for your social life. 

Money in your bank account helps you balance your financial life. Whether it’s paying bills or saving for the future, each of the following components contributes to sprucing up your financial home.

Managing Expenses and Income

You’ll get nowhere fast if you can’t get a grip on your income and expenses. Money goes in, money goes out, but are you keeping track? Or are you left scratching your head, wondering where it has all gone?

Creating a budget and tracking your cash flows is the key to gaining financial security.

First, look at your income. Keep a record of all your income sources — paychecks, retirement benefits, investments, alimony/child support, maybe that winning lottery ticket. 

Knowing your monthly income is a great starting point. We all should floss our teeth, and we all should keep a budget. But when your income is unsteady, budgeting is even more vital. You want to budget for slow months and save some extra cash when things are good.

On the expense side, every dollar should have a purpose. Rent, utilities, and insurance are fixed expenditures — they’re about the same every month. But variable expenditures like dining out, entertainment, and shopping are where many of us get into trouble. 

Tracking your spending allows you to find out where you can cut down without feeling deprived. Tools like budgeting apps or even a basic spreadsheet can help you take control.

Monitoring Debt and Credit Health

When you manage debt right, you may be able to build a good credit score, buy a home, or fund some big dreams. But if you fall behind, debt can consume your paycheck and trap you in poverty. That’s why you must monitor your debt utilization and credit score.

Obviously, not all debt is bad, but excessive debt can ruin your financial life. Credit cards and loans can charge high interest, which adds up fast and makes it difficult to get on top of your finances. 

Having a plan to pay off your high-interest debt first (the avalanche method) can leave you with more cash to use elsewhere. Alternatively, you can use the snowball method, where you pay the smallest debts first to build psychological momentum. 

The payoff for managing your debt well is a good credit score and a healthy credit report. So equipped, you may qualify for loans, obtain low interest rates, and even reassure landlords when you want to rent an apartment.

Key factors are your payment history, how much of your available credit you use, and the length of your credit history. The ticket for a better score includes paying bills on time, keeping balances low, and waiting several months between new account applications.

Then there is the all-important peace-of-mind meter. It’ll be in the green if you live within your means and monitor your, but it can dip into the red zone when you constantly need more money than you have. 

Building Emergency and Long-Term Savings

Life has a habit of pitching curveballs when you least expect it. But just because we don’t know the when and where doesn’t mean we can’t prepare. 

Savings are the first line of defense when you suddenly need the services of a physician, roofer, or car mechanic. I recommend you save at least six months of expenses in case your income stream runs dry. That sounds like a lot of money, but you can get there if you consistently pay yourself first. 

Put aside a fixed percentage of every paycheck and stow the cash in an insured money market account or short-term CD. Anywhere that’s safe from impulsive spending. Your bank will be happy to help by automatically transferring a part of each pay packet to a savings account.

Traditional 401ks and IRAs help you build a nest egg by letting you deduct your contributions from your taxable income. You don’t have to pay taxes until you withdraw the money, and you can avoid early withdrawal penalties by following the rules.

Alternatively, you can use a Roth account — you won’t get a tax deduction, but distributions are tax-free (as long as you observe the rules). In either case, your money can grow with some tax benefits.

Real estate, stocks, and other investments can help you build long-term wealth. By starting early, you benefit from compounding, improving your financial standing over time. In addition, an early start gives you time to recover from the inevitable financial bumps, like bear markets and recessions. 

Another useful tactic is dollar cost averaging, in which you invest a fixed amount each month regardless of what the market is doing. When the bull is ascendant, you’ll purchase fewer expensive shares, but when the bear wakes up, your fixed purchases will buy you more shares on the cheap. 

Over time, you profit because your average cost should be less than your average price. 

Sufficient insurance can also help you when life slaps you around. Life, health, disability, property, and liability insurance can fill in the voids left when bad things happen. And believe me, they do.

If you are fortunate enough to own your home, consider getting a home equity line of credit (HELOC). This is a revolving loan account that gives you quick access to larger sums of money. 

Many folks can qualify for a credit limit equal to at least 85% of the equity they have in their homes. You only pay interest on the amount you actually withdraw from the HELOC – although you’ll pay a one-time origination fee. But this option could allow you to weather an unexpected storm or jump on a surprise opportunity.

Your finances might improve on their own, but usually, they need a helping hand. That includes setting up a budget and developing sound financial habits for earning, spending, and saving money.

Create a Realistic Budget

Don’t think of a budget as a straitjacket, but as a bit of tough love that will keep you on the right path. Budgets only work if:

• They’re realistic
• You follow them
• You track your actual cash flows and compare them with your budget.

A good budget includes the cost of your necessities, debt payments, and savings without making you feel like you’re constantly struggling to keep up.

Start by tracking every dollar you earn and spend. You don’t need elaborate software — a simple notebook, spreadsheet, or budgeting app will do the trick. The key is knowing exactly how much money flows in and out. 

Once you have a clear picture, organize your expenses into essentials (like rent, groceries, and utilities) and non-essentials (like entertainment, dining out, and impulse buys). Adjust accordingly if you’re spending too much in one area. 

A popular rule of thumb is the 50/30/20 Rule. This means putting 50% of your income toward required spending, 30% toward discretionary spending, and 20% toward savings and debt repayment.

I’m not endorsing a particular set of percentages — you can tune them to fit your needs. The goal is to find a balance that covers your obligations without strangling your lifestyle.

There will be times when you just can’t color within the lines, and you go over budget. But just relax and try again next month. If you keep on missing the target, draft a more realistic budget. 

Reduce Debt and Build Credit

Debt can feel like it weighs a ton, but paying it off will leave you feeling light as a feather. I mentioned the avalanche method earlier because it’s the most efficient way to pay off your debt. But the snowball method is fine, too; it’ll just take a little longer.

You can start the process by rounding up all the information about your debts — credit cards, loans, and any other amounts owed. Sort them in descending order of interest rate if you want to use the avalanche method. If you’re a snowballer, sort your bills by ascending amounts. 

Follow your chosen sort order to pay down your debts.

For the avalanche method, start with your high-interest debt. Pay extra on the most expensive debt, and just make the minimum payments on all the others. Paying off high-interest debt as quickly as possible will save you money in the long run. Use the strategy that works best for you and stick to it like glue.

Building better credit is a natural outcome when you pay off your debts. You also need to pay your bills on time, maintain low balances, and avoid applying for too many new accounts within a brief period. All these actions will coax the three major credit bureaus to recognize your creditworthy actions and raise your credit score.

As your score rises, you’ll have access to better credit cards and cheaper loans. Your lifestyle will thank you for your effort and patience. 

Plan for the Future

It’s coming faster than you think, so you need to do some heavyweight planning. It’s easy to focus on your immediate circumstances, but it’s essential you also keep an eye on the long term because small actions now can pay big dividends down the trail.

Planning begins with figuring out your financial goals. What are your objectives for the next five, 10, and 20 years? How do you envision your retirement years? Maybe you want to start your own business or buy a home. If you’re like most folks, you’d prefer a comfortable retirement with enough money to do the things you want, within reason. 

Now, these goals aren’t cast in stone and will probably evolve. The wonderful thing about accumulating wealth is that it gives you the freedom to change your plans. Or to have no specific plans at all except to marshal your money for the future.

You won’t know if you’re making headway unless you monitor your wealth. Are your savings and retirement accounts showing steady growth? Are you living within your budget? Financial institutions are happy to inundate you with the details of your activities — it’s up to you to adjust your behavior accordingly. 

To that end, consider using financial planning software. Good programs can process reams of data for you to slice and dice as you search for answers. You can track the growth of your IRAs and 401Ks, the size of your debts, areas of waste, and how much you can sock away each month. 

As you invest in financial assets, learn why diversification is the best way to balance risks against returns. When your portfolio is diversified, some of your assets may zig while others zag, reducing overall volatility. That’s important because it lessens your stress levels and enables you to ride out any short-term financial turmoil. 

Your investments should reflect your risk tolerance. Ask yourself how much you would be willing to lose for the chance to gain $100. It’s a clever way to figure out whether your risk attitude is conservative, neutral, or aggressive. 

By aligning your investment portfolio with your risk tolerance, you’ll have a better idea of how much money to set aside now to reach your long-term goals. A financial advisor (living or AI) can help you identify assets that match your investment strategy.

You don’t have to manage your finances all on your own. Many resources and services can help you track your money, improve your credit score, and save for the future. 

Credit Monitoring and Budgeting Apps

It is much easier to manage your finances when you use the right technology. Credit tracking and budgeting software help you manage expenses, pay bills, and monitor your credit health — directly from your phone or computer.

Budgeting software like YNAB (You Need a Budget) and PocketGuard provide details on where your cash is going. They break your expenses into categories, alert you when you overspend, and help you set up saving goals.

If you struggle to stick to a budget, features such as automation will help you stay on track without the hassle of tracking everything yourself.

Credit reporting services such as Experian, Credit Karma, and myFICO let you check your credit score regularly and stay on top of any changes.

Keeping an eye on your credit report helps you detect errors, identify fraud, and see how your financial decisions influence your score. You can access your credit scores for free as often as once a week at AnnualCreditReport.com.

Some services also include recommendations on how to improve your credit in the long term. Most banks and credit card companies offer built-in budgeting tools and free credit score tracking. Using those tools lets you avoid paying extra for third-party services. 

Nonprofit Organizations and Counseling Services

Occasionally, you may need something more than an app to sort out your finances. This is where nonprofit agencies and financial counseling services can help. These services provide guidance and education if you want to set up a budget and avoid overpaying for expert advice.

Nonprofit debt counseling agencies such as the National Foundation for Credit Counseling (NFCC) and Money Management International (MMI) offer low-fee or no-fee services to help you manage debt and budget and devise a strategy for long-term financial health. 

Debt counseling agencies can communicate with creditors on your behalf, develop debt management plans, and offer you personalized financial guidance based on your circumstances.

Nonprofit debt programs can help explore debt consolidation, settlement, or payment plans. These programs work with lenders to reduce your interest and monthly payments so you can get your financial health back on track without resorting to risky payday loans and credit cards with excessive interest.

Government programs and community organizations offer free workshops, webinars, and personal coaching services to enhance financial literacy. 

These range from homeownership and building credit to saving for retirement and avoiding fraud. You can also use the resources of the Consumer Financial Protection Bureau (CFPB), as well as those of your local housing agencies, to guide your financial decisions.

Reaching out for financial assistance isn’t failure — it’s taking charge. With the right guidance, you can create a strong financial footing and work toward a life where financial concerns won’t stymie you.

It’s not just a matter of keeping your books balanced — it’s also about peace of mind. Life is better when your pockets aren’t empty. Financial health can mean less stress, more freedom, and a better night’s sleep.

If your budget is like a leaky bucket, plug it in with a strategy that ensures cash comes in faster than it flows out. Pay down debt in small increments, build up reserves to cover surprises along the way, and borrow when you need a helping hand. 

Financial wellness lets you stand on your own two feet. Take charge, stay on track, and build a life where concerns over cash don’t hold you hostage.