Financial Wellness is an economic matter related to a person’s day-to-day income, investment, savings, and expenditure. To sum up, a person’s financial wellness delivers his potential economic stability in the future.
However, in this 21st century, there are hardly any millennials who trust the concept of savings and investment. Unlike earlier generations of people in business and employees, millennials do not take retirement plans, life insurance, or any form of investment that will help them maintain a financially independent lifestyle after 60+ age.
Do you know? In the world of finances and management, a rule of thumb follows the 50-30-20 abstraction to save a part of income every month successfully. For example, an employee, according to this rule of thumb, should ideally spend 50% of income on necessary commodities such as food, clothing, rent, good hygiene, daily conveyance, etc. On the contrary, 30% of the income shall go to luxurious commodities (if any) such as a night out, eating in a restaurant, renovation, and other incidental and avoidable activities to save money.
Last but not least, 20% of one’s income per month should go to savings and investment. There is no one way of saving money. For example, you can get life insurance (to safeguard the future of your family), pension plan, retirement plan, stock market, cryptocurrency, mutual funds, fixed deposits, direct equity, bonds, and so on.
Yet, of course, a single rule of thumb is not sufficient to accomplish financial wellness. Today, we brought you 7 tips to obtain financial wellness in life. Let’s get started:
What is financial wellness?
To begin with, Financial Wellness is not limited to the concept of meeting your financial needs in the present. The concept of financial wellness also undertakes one’s ability to meet the financial needs of today and a financial liability in the future. For example, an employee living from paycheck to paycheck cannot be counted under the category of financial wellness. Why? Here’s the reason —
If such an employee leaves or loses his job in the future, he wouldn’t have an upcoming paycheck to meet next month’s financial obligation. An unmet financial obligation can leave a person in conditions of poverty, debt, homelessness, etc.
In elementary terms, we can say that; a person/employee/businessman is considered “Financially Well” or successfully achieved “Financial Wellness” when he/she —
- Have money to spend on necessities of life from paycheck to paycheck.
- Holds sufficient money in savings to spend on emergencies such as medical crises.
- Is able to handle a financial shock. For example, if he loses a job, he has sufficient savings to fulfill his day-to-day needs for 2 months or more; until he gets a new job.
- Is willing to meet upcoming financial goals such as getting a home loan.
- Do go into debt instantly after facing a business loss.
It is also crucial to note that the “Financial Wellness” graph is distinct for every person, employee, employer, or businessman. It is because each person has a different set of income, distinctive financial goals, and sources of savings and investment.
Top 7 Tips to obtain financial wellness and stability in life — in the long run!
Without a doubt, when a person works a job for 4 hours or more, it is only understandable to obtain financial Independence. However, there is a big difference between financial wellness and Independence. Financial Independence only considers your financial stability in the present. In comparison, financial wellness focuses more on the future and accomplishment of high-end future goals such as owning a house, a car, a healthcare plan, and so on.
Here are the top 7 tips using which you can accomplish financial wellness in the long run. Please note that patience is a very crucial factor in doing this successfully. If you are a hardcore spender, it may be difficult for you. But, hold on to your shopping horses. Let’s get started:
#1: Consider at least 20% of your income per month — UNSPENDABLE!
To achieve financial wellness month-wise, you will have to keep saving. Let’s suppose you earn 10K USD per month. It is wise enough to save at least 2K USD per month in order to build a financial status for yourself. Now, those who are addicted to spending money, here’s what you should do:
Build a mindset of viewing your income in two parts — Spendable vs. unspendable. For example, out of 10K per month, you can spend 8K on necessary things such as rent, clothing, footwear, conveyance, credit card bill payment, utilities, hygiene, and whatnot. On the other hand, consider 2K out of 10K entirely unspendable and unapproachable (except for medical emergencies and crises).
In this way, in 12 months alone, you will have 24K USD in your savings. So, yes, if you keep going, in 2 years, you will be able to own a car.
#2: Cash payment > Credit/Debit Card Payment
Do you know? According to worldwide finance statistics, 14% of consumers only pay with cash in high-end countries like the USA, UK, India, China, Japan, etc. In contrast, 26% pull out their credit card to pay every time. And the rest, 54%, prefer debit cards. But, here’s what the studies say: a consumer paying using a credit/debit card will likely spend more than required. In comparison, a consumer paying cash will spend exactly as their financial appetite. Why is that?
This tip has a hardcore financial reason behind it. Back in the days when employees used to spend with cash, they had a physical, financial consciousness that protected them from spending hard-earned money on unnecessary things.
However, today, millennials are used to spending money without realizing :
- what are their current credit card debts,
- how much interest they have to pay to the bank in addition to this debt,
- How much money they have in the hand/bank, etc.
Whereas financial wellness conscious people back in the day used to calculate their entire expenditure/investment/saving in their mind during every spent penny.
#3: Live by a BUDGET
Presuming that you are an outgoing person with a luxurious lifestyle, living on a budget can be very challenging. A financial budget hardly gives you any potential to spend on luxurious things such as — eating out every day, shopping whenever you want, taking a cab wherever you go, etc.
However, the good thing about creating a budget for your monthly expenditure is that it gives you an exact idea of your financial stability. It gives you proper insights into how much you can save to accomplish your big-time goal in the future. Here is a brief logue on how to create a budget:
- Calculate your “Income in hand/bank.”
- Let’s suppose you get a 10K USD check every month. Among these 10K, you may have taxes to pay, credit card debt, EMI (if any), and so on.
- Thus, please deduct factors like — taxes, EMI, mortgage, credit card debt, late payment fees, etc. What is left will be your net income.
- Now, separate your necessities from desires. For example, rent is a necessity, whereas home decoration is a desire which you can push forward in the future. Similarly, groceries are a necessity, whereas eating out is a desire which you can push from every day to once a week.
- Once your needs and wants are separate.
- Calculate how much you ought to spend this month and how much you can save!
- Let’s suppose, in 10K. You have the potential of saving 3K.
- Then, instantly, transfer this 3K either in Fixed Deposit or another bank account (savings).
Build a mindset that you ought not to touch or spend this 3K savings until or unless it is unavoidable at all costs. For example, during a medical crisis. This will give you leverage over your habit of spending more than required.
#4: Benefit from Automated Investment Technology
You are living in the Gen M (21st century), and it is surely both a privilege and disadvantage based on how you use today’s technology! For instance, if you automate every spending towards credit cards, you can only improvise your debt. That’s one use of technology that does not work in the enhancement of your financial wellness. Whereas automated investment is a type of technology feature that allows you to invest wherever you want and whenever you want. The good part is that you do not have to go anywhere. Instead, banking institutions nowadays present multiple investment alternatives on their mobile app.
For example —
- Fixed Deposit schemes
- Recurring deposit schemes
- Mutual Funds
- Gold Investment
- Digital or Cryptocurrency
- Gold bonds
- Public Provident fund
- National pension system
- Value/Dividend Stock Funds
All these investment tools are widely available in banking institutions in many countries such as India, the USA, the UK, etc. Please note that some countries may vary in the context of terms. Contact your bank for any queries.
Further ahead, there are multiple investment applications out there (100% verified) that allow you to calculate your risk based on investment plans. Hence, you go ahead and invest your hard-earned money with a fully satisfied mindset.
#5: Set up financial goals or future plans that majorly impact your lifestyle
To begin with, having to live from paycheck to paycheck is not fun. Indeed, employees who live in rental properties find it challenging to deal with the fact that they have to sacrifice at least 30% of their total income every month on rent. Why is that?
Well! Let’s suppose you earn 10K per month. If your rent is 3K USD per month, it means that you will end up paying $120, 000 to the landlord in 40 years without obtaining anything out of it. Do you know? For $120, 000; you can purchase an apartment. It makes you think, huh?
So, why not start working on this goal now? Whether you want to purchase a house with cash in full in the future. Or you want to take a home loan. Make it your goal for today and the next 10 years. It will allow you to look forward to bigger goals in life in the future. As a result, your instinct to spend money without thinking will not act up every now and then. Because, in the back of your psyche, you have a bigger goal that will give you the highest satisfaction of all.
#6: Borrowing money is not the way out!
When it comes to calculating the thin line between the money you have in hand and the money you borrow — it is literally negligible. Do you know? According to the latest Debt statistics in America, over 340 Million people are living in debt of some form, counting home loans, personal loans, EMI, construction loans, and whatnot. Do you know what the mindset of these people is?
Well! Spending all your money in the bank or in hand is different from spending borrowed money. You have to pay additional interest on these debts. As a result, you will no longer have any leverage to save money or invest it for financial wellness in the future.
According to popular phrases, debt is a very deep puddle of financial issues. You keep taking loans and loans until your 100% paycheck goes to paying interest. This mindset of living in debt can be very unhealthy. It can lead to stress and depression due to the upcoming financial crisis and your inability to do anything about it.
#7: Create a Financial Wellness Journal
Nowadays, with all the expenditures you do, whether using a debit card or credit card, you can get an e-Statement with a single click. However, having a financial wellness journal gives you much satisfaction and insights of:
- How much did you disburse in the past month?
- What is your current savings status?
- How much debt do you have in hand?
- How much do you spend on utilities and food?
And so on!
All these aspects will allow you to cut down on your expenses wherever there is leverage.
So, are you ready to get on your financial transformation journey? Get a quick insight into investment options on your bank’s official website to begin. Thank you for having this journey with us. Monthly success in your financial wellness is a celebration for us. Share your first month’s experience in the comments. Good luck!