Money problems rank as one of the top causes of stress, divorce and relationship problems. They can also affect your physical health. And when your health begins to deteriorate, that can further impact your finances.
The Consumer Financial Protection Bureau defined financial well-being as having financial security and financial freedom of choice, in the present and in the future. The agency researched personal financial well-being, and found that it had four elements.
|Security||Control over day-to-day, month-to-month finances||Capacity to
absorb financial shock
|Freedom of choice||Financial freedom to make choices to enjoy life||On track to meet financial goals|
It’s not your income or balance sheet or any single financial factor that creates your financial well-being…although having enough money helps. The factors that influence your financial well-being include:
Although some of these factors will remain out of your control, you can improve your financial well-being by taking the following steps:
- Live within your means. That includes:
- Practicing contentment
- Cutting down on mindless spending
- Staying out of debt
- Using credit responsibly when needed
- Acting like an entrepreneur. Look for opportunities to generate income and avoid interruptions in paid work.
- Connect your hopes for the future to concrete plans. That means:
- Identifying specific, realistic goals. For example: be debt-free by a certain date, have $XXX, XXX in retirement savings by a specific date, pay off your mortgage by a certain date.
- Making step-by-step plans to reach those goals.
- Seeking out trustworthy information where needed.
Any financial plan should include contingency funds and means to help you absorb a financial shock. For most people, this means having an emergency fund of at least six months’ worth of living expenses in savings or easily liquidated assets. It also means having insurance to cover you for life’s unpleasant surprises, such as illness, disability and accident. All of these can affect your earnings and cause increased medical expenses.
Certain coverages, such as term life insurance, critical illness coverage and accident insurance, probably cost less than you might think for the amount of coverage they could provide if you ever need them.