Achieving financial well-being is a broad goal, one that encompasses many more specific actions — spending, saving, addressing debt, managing credit and planning for the future, to name a few. According to the Consumer Financial Protection Bureau, the way to understand financial well-being is to look at how much your financial situation and money habits provide you with “security and freedom of choice.”
There’s no one avenue to achieving financial well-being; rather, it requires efforts across these different areas that work together to set you up to meet your goals and handle challenges as they arise.
Here are four general tips for improving your financial well-being.
Keep Your Budget Current
Have you ever put off creating or updating your budget because, well, you just didn’t feel like it? Or because you became busy and forgot? These are very common sentiments — and both illustrate why it tends to be more convenient and more useful to keep a flexible running budget rather than think of budgeting as something you must sit down and do once a year.
Why is it so important to keep your budget up to date? Circumstances can change very quickly, so trying to base your spending and saving decisions off of an outdated budget won’t help. Case in point: Nearly two-thirds of Americans (64 percent) saw their spending habits change in 2020 as a result of the pandemic.
Utilizing an expense tracking app is perhaps the simplest way to track your daily spending and automate some of your budgeting tasks. Furthermore, it’s also important to take the time to set specific goals to guide your spending and saving efforts over time.
Take the Growth of Your Emergency Fund Seriously
A big part of financial well-being is security. There’s a lot of peace of mind in knowing you’re prepared for unexpected expenses as they crop up, whether your cat needs to visit the emergency vet, the transmission on your car goes out or you face a layoff at work.
Having a healthy emergency fund means you can either afford to pay for an emergency expense outright — without having to put it on a credit card or take out a loan — or that you can float yourself for a few months while you figure out your next moves.
Many experts recommend accumulating an emergency fund containing living expenses for three to six months. If that seems too daunting right off the bat, start by setting incremental goals, then set up automatic transfers from your checking account to your emergency savings account.
Do All You Can to Pay Down Your Debts
Carrying debt is counterproductive to all your other money goals.
Addressing debt effectively involves two types of actions: Paying down your existing debt and changing the behaviors that got you into debt in the first place. You may be able to free up enough money through budgeting to strategically work down your debts one at a time. Or, you may have enough debt to necessitate a strategy like consolidation, a debt management program or settlement.
As for changing your behaviors, consider whether overspending on credit is a problem for you. If it is, consider using cash or debit instead — or using your credit card much like a debit card, only allowing yourself to buy what you can pay off in full each month. As debt relief expert Brad Stroh notes, this approach stops the cycle of swiping on credit “then dealing with the problem later.”
Understand What Affects Your Credit Score
Credit score is another pillar of financial health — and understanding exactly which factors affect your score can help you make decisions that ultimately raise your rating.
To summarize, the five largest factors are:
- Payment history: 35 percent
- Amounts owed: 30 percent
- Credit history length: 15 percent
- Recent credit: 10 percent
- Types of credit in play: 10 percent
Want to improve your financial well-being? Approach this challenge from different angles like saving, spending, credit usage and budgeting.
