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You probably have a few goals in mind when it comes to thinking about your financial life. You might think about taking more control over bills, getting to a specific point like paying off a credit card or making an important purchase.
Savings and income are part of financial wellbeing, but they're not always the most important part. Instead, when people talk about their own financial wellbeing, four main elements come to light.
Feeling in Control
People who have high levels of financial wellbeing feel in control of their day-to-day and month-to-month finances. They cover their expenses and pay their bills on time, and generally, they do not worry about having enough money to get by. This is not just about having money, it's about managing it. Think of this as having financial security in the present.
Capacity to Absorb a Financial Shock
Whether they get in a car accident or are temporarily laid off from a job, these consumers have a safety net such as savings, insurance or family to help stop a shock from turning into a longer-lasting setback. One way to describe this is feeling financial security for the future.
On Track to Meet Goals
Consumers with a higher sense of financial wellbeing say that they are on track to meet their financial goals. Whether or not they have a formal financial plan, they are setting goals that are important to them and working toward those goals. Think of this as moving toward financial freedom for the future.
Flexibility to Make Choices
These consumers have the financial freedom to make the choices that allow them to enjoy life, whatever that means to them. Whether that is taking a family vacation, going out to eat or working less to spend more time with family, these consumers have the financial flexibility to do what they value and what makes them happy. This can be described as having financial freedom in the present.
Applying this framework to your own financial life might help you feel more satisfied with the decisions you make too. When you face a financial choice or task, consider how your actions might affect financial security and financial freedom, today and in the future.
Reference:
Ratcliffe, J. (2015, 27 January). 4 elements define personal financial wellbeing [Excerpt]. Retrieved 28 June 2019 from the Consumer Financial Protection Bureau (CFPB) website blog: https://www.consumerfinance.gov