Our financial wellness is the state of being in control of your finances, both in the short and long term. It means having a clear understanding of your financial situation, being able to meet your daily needs, planning for the future, and, ultimately, using money to free up your time.
Financial wellbeing is not just about having money; it’s about managing it wisely, avoiding excessive debt, understanding how to grow your income and planning for the future to allow you to spend most of your time on things that you find meaningful and enjoyable.
Your state of financial wellness directly impacts your overall well-being. When you feel financially ‘well’, you experience less stress and anxiety, allowing you to focus on other areas of your life, such as health, relationships, and career. It gives you the freedom to make choices that align with your values and long-term goals without being constrained by financial limitations.
On the other hand, a lack of financial wellbeing can lead to significant negative consequences, including chronic stress, anxiety, and even depression, which can affect virtually every part of your life, work and relationships.
Achieving and Maintaining Financial Wellness
In my view, achieving and maintaining financial wellness is essential for a balanced and fulfilling life. So here are my 10 ways to help you do just that.
Whether you’re just starting out on your financial wellbeing journey or looking to refine your financial habits, the 10 points below will guide you towards a more empowered and prosperous future.
Pay Yourself First: Save Aggressively and Consistently
The cornerstone of financial security is saving. Start by saving at least 10% of every pound or dollar you earn. Automate this process with a bank transfer, ensuring that saving becomes a non-negotiable habit. As you grow more comfortable, challenge yourself to increase this percentage every quarter until you’re saving up to 50% of your income. This may seem ambitious, but the goal is to push your limits and make saving a significant part of your financial routine.
Build a Safety Net: Hold 6-12 Months of Expenses in Liquid Cash
Life is unpredictable, and financial stability requires a solid safety net. Maintain a buffer of 6 to 12 months’ worth of living expenses in liquid cash. This is your financial cushion that should never be put at risk. It’s there to protect you in times of uncertainty, allowing you to navigate life’s challenges without jeopardising your long-term financial goals.
Keep Debt in Check: Maintain a Low Debt-to-Income Ratio
Debt can be a powerful tool or a crippling burden. Aim to keep your debt-to-income (DTI) ratio below 10%. This means that the total of your monthly debt payments should be less than 10% of your gross monthly income. By keeping your DTI low, you ensure that debt doesn’t become an anchor, holding you back from achieving financial freedom.
Eliminate Non-Productive Debt: Prioritise Payoff Before Investing
Before you start investing, focus on paying off any non-cashflow-producing debt. This includes credit card debt, personal loans, and other high-interest liabilities. Your primary mortgage can be an exception, but even then, it’s important to understand the financial implications. Buying a home isn’t always the wisest financial decision, so do the math and make an informed choice.
Increase Your Income Annually: Create Value Through Passion
Stagnant income is a barrier to financial growth. Every year, work on increasing your income by packaging products or services that you are passionate about. The key is to find something that inspires and fulfils you, making it easier to deliver exceptional value. As your passion translates into income, your financial landscape will improve dramatically.
Invest in Yourself: Allocate 10% of Income to Personal and Professional Growth
Personal and professional development is an investment that pays the highest dividends. Dedicate 10% of your personal income to books, courses, masterminds, and mentorship. Similarly, allocate 10% of your business income to research, development, and testing. These investments in growth will sharpen your skills, expand your knowledge, and open new opportunities.
Avoid Financial Pitfalls: Stay Clear of Schemes and Fads
Financial success is built on solid principles, not shortcuts. Avoid schemes, scams, fads, gimmicks, stock tips, lottery tickets, gambling, and other “easy money” traps. Traditional paths like college, over-priced weddings, and the pursuit of a white-picket-fence lifestyle can also be financial pitfalls if not carefully considered. Always do the math and make decisions based on what truly inspires you, not just societal norms.
Set Boundaries: Don’t Loan Money to friends or family
As much as you may want to help, loaning money to loved ones can lead to financial strain and damaged relationships. You’re not a bank, and if someone can’t secure a loan through traditional means, it’s a red flag. If you must lend money, do so with the understanding that you may not get it back and that it could affect your relationship.
Invest with a Long-Term Perspective: Think in Centuries
Investing isn’t about quick wins; it’s about long-term growth. Develop an investment strategy with a 100+ year outlook, thinking about the legacy you want to build for future generations. If you’re unsure where to start, a simple yet effective strategy is to buy the whole market monthly through index funds or ETFs. This approach minimizes risk while allowing you to benefit from the overall growth of the market. However, you must do your research, learn (from reputable people) about the markets and different investment tools and make sure you understand all of the risks involved before making an investments.
Practice Fair Exchange: Seek Balance in All Transactions
Money is a tool for fair exchange. Whether in your workplace, business, community, or home, always strive for fairness in your transactions. Don’t martyr yourself by giving more than you receive, nor should you seek rescue or charity. Instead, focus on serving others and ensuring you receive fair remuneration for your efforts. This balance is the key to sustainable financial success.
Living an Empowered Life
These ten steps are a mindset—a way of approaching your finances that leads to empowerment and freedom.
By saving aggressively, managing debt wisely, investing in yourself, and avoiding financial pitfalls, you’ll create a life where money serves your goals, not the other way around.
Remember, financial success isn’t about how much you make but how effectively you manage what you have.
Live by these principles, and you’ll be well on your way to an empowered and prosperous future, full of financial wellbeing.
Title Photo by Fabian Blank on Unsplash
