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Financial Wellbeing

The money mindset of an individual impacts financial wellbeing. The financial decisions we make, the way we deal with money, how we manage our debts, how financially prepared we are to handle emergencies, etc., impact our financial well-being. ...Read More

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Financial Wellbeing
5 Years Investment Plan

What is Financial Wellbeing?

What is Financial Wellbeing?
January 06, 2025

Table of Content

 

Being financially secure and in control of your finances is financial well being meaning. The definition also differs with age. Youngsters consider financial well-being as financial empowerment, and older adults consider it as being financially independent in retirement and planning for the financial security of their families. 

In brief, financial wellbeing is about how to make the most of your money. It is your ability to control your finances, avoid unnecessary expenses, develop savings discipline, invest smartly to create a sufficient corpus for your financial goals and be prepared for unforeseen expenses. If you are working towards financial well-being, you set your goals, create a budget to make room for investments to achieve these goals, invest in various assets in alignment with your goals and risk appetite, and review and adjust the investment depending on changing market conditions and goals.

Benefits of Financial Wellbeing

Having understood the financial well being meaning, you should work towards boosting and deriving the benefits which are:

  • Reduced Stress and Anxiety

    • When your finances are in control, you do not have to worry about unexpected expenses, managing debts, arranging funds for major events in life such as children’s education, planning their marriage, medical emergencies, etc. With financial stability, you have peace of mind as you are not anxious or stressed about unpaid bills, debts, and forthcoming financial burdens.

  • Increases Financial Security

    • Financial well being meaning is being able to manage your finances responsibly and feeling financially secures. You will have control over your finances and can decide what to spend on and what to eliminate. With financial resources, you can handle adverse financial situations, manage bills and debts, and invest for the present and future goals.

  • Achieving Financial Goals

    • When you are working towards financial wellbeing you have a financial plan that helps in achieving your financial goals. Prudent financial planning helps achieve your economic objectives. It factors in market volatility and inflation to predict the probability of achieving your goals. It also draws an investment plan that leads towards wealth building to achieve short-term and long-term goals.

  • Better Retirement Planning

    • After knowing what financial wellbeing is, you should also know how to work towards it. Financial planning helps you strategically work towards improving your economic wellbeing.  One of the advantages of financial planning is a better retirement plan.

    With smart budgeting, which is an integral part of financial planning, you can create disposable income and deploy it to secure your financial future through an investment plan. It helps you plan your retirement with investments in long-term and safe financial tools such as PPF, NPS, EPF, etc. The compounding effect in these assets helps create a corpus for financial independence at retirement.

Key Components of Financial Wellbeing

For a larger perspective of what is financial wellbeing, you should be aware of the key components of financial well-being. Focusing on these elements culminates in long-term financial success. They are:

  • Budgeting and Managing Expenses

    • Budgeting and managing expenses are crucial for financial fitness and to achieve goals set for every stage of life. It could be creating an emergency fund, planning for your child’s education, buying a house, insurance planning, or retirement planning.

    For efficient budgeting, you have to track your daily and monthly expenditures. Categorise the expenses, strike out the unnecessary ones, and create room for investments.

  • Saving and Investing for the Future

    • It is important to prioritise savings for robust financial wellbeing. Learn to start saving early so that you have enough time to learn from your mistakes and fine-tune your investment skills. Your savings should be well utilised for short-term goals like building an emergency fund to manage unforeseen expenses and bounce back, as well as long-term goals such as a retirement plan.

  • Managing Debt and Credit

    • The main element of financial literacy is credit and debt management. Using credit responsibly, understanding the implications of debts, and planning a strategy for debt-free living accelerate your progress towards financial wellbeing. Being efficient in credit management will improve your credit scores and open doors for loan opportunities.

  • Planning for Emergencies

    • A broken gadget, an unexpected medical emergency, or income loss are some financial emergencies that can rattle your budget. Setting aside a fixed amount in a high-yield savings account with high liquidity will keep you prepared for these unplanned expenses.

  • Watch Your Credit Score

    • Keep a close watch on your credit scores. A good credit score will open opportunities for loans with competitive interest rates. The scope for higher loan and credit card limits at competitive rates are perks of a good credit score. A low credit score means a higher interest rate that can harm your budget and limit your investing resources.

How to Improve Your Financial Wellbeing?

Financial wellbeing is not only about developing spending control. It involves planning and working on various elements. Some of the mandatory aspects you need to work on are:

  • Creating a Budget

    • After a financial health assessment, you should devise a strategy to strengthen it. Creating a budget is the initial step. Track your expenses and compare them with your income. If not overspending, your expenses may drain your entire income, leaving no scope for savings.

    In such instances, you have to categorise your expenses and eliminate the ones that seem impulsive and unnecessary. You should also plan to clear high-interest debts like credit card dues, personal loans, etc., to have enough to set aside for savings. Whenever there is income growth, you should revisit your budget and tweak it to make more room for saving and investing.

  • Building An Emergency Fund

    • Financial wellness is being prepared for unplanned expenses and feeling monetarily secure. Allocate a part of your income to savings. Park them in a high-yield savings account with high so that the funds yield returns when it is not in use. An emergency fund gives you peace of mind and allows you to handle unexpected events without stressing your budget.

  • Reducing and Managing Debt

    • Reducing and managing debt is crucial in maintaining financial wellbeing. Paying up debts on time avoids penalties and excessive interest costs. It reduces the risk of default and helps maintain a healthy credit score. Gradual debt reduction enhances the financial resources needed to invest and create wealth over time.

  • Setting Realistic Financial Goals   

    • Financial planning begins with setting personal financial goals. Define short-term and long-term goals. Assess your current financial status and select attainable goals. Set timelines for the goals. Prioritise them and create an investment plan to build a corpus to achieve these goals. Review your investment portfolio and adjust it according to changing goals, financial situation, and market conditions.

Conclusion

Financial wellbeing is often mistaken for financial health. While financial health is about how much corpus you have built and the bank balance, financial well-being is about your capability to honour financial obligations, meet everyday expenses, be prepared for unplanned expenses and secure your future. 

Focussing on key elements such as setting financial goals, creating a budget, building an emergency fund, investing for the future, and reviewing and adjusting your investment portfolio will lead you to financial well-being. If the procedure is overwhelming and your investment skills are limited, you can attend a financial wellness programs and learn to manage your income and expenses efficiently.

FAQs on Financial Wellbeing

Q. What is financial wellbeing?

Financial wellbeing is your ability to work within your income and set aside some amount for savings. This depends on how adept you are at managing your spending and differentiating between spending on what you like, unwanted expenses, and mandatory expenses. You should also be able to honour your financial obligations, manage debts to avoid penalties and secure your future with smart investments. 

Q. What is personal financial wellbeing?

Personal financial well-being is about controlling your finances, being prepared for unplanned expenditures, and being on track for a secure financial future. It comprises financial resilience and empowerment. Financially well-off individuals are economically stress-free.

Q. What is the objective of financial well-being?

The objective of financial well-being is the ability to have control over finances and manage your money responsibly to achieve financial goals. It includes meeting financial obligations, being prepared for emergencies, being able to spend for what you like, such as planning a holiday, saving for the future, and feeling financially secure. 

Q. What are the main components of financial well-being?

The main components of financial well-being are budgeting and managing finances, planning for emergencies, managing debt and credit, planning for the future, and watching the credit score. 

Q. How does financial well-being relate to mental health?

Financial problems can trigger stress and anxiety. Being disturbed about pending bills and EMIs leads to sleep problems. The insecurity impacts social life and relationships.

Related Articles:

References:

1. https://www.forbes.com/sites/lizfrazierpeck/2022/01/19/financial-wellness-is-critical-to-your-overall-healthand-financial-literacy-is-the-key/

2. https://www.investopedia.com/terms/f/financial-literacy.asp

 

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Note: This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial advisor for any financial matter.

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