Financial Well-being: What Is It and Why Is It So Important?

We make financial choices every day – from choosing our next holiday destination right down to whether to buy a small or medium coffee on our way to work. All of these choices impact our lives and contribute to what we call our financial well-being. Managing your money and debts looks different for everyone, meaning everyone needs a unique approach to their financial well-being. If you’re unsure what this looks like or where to start, keep reading for more information.

What is financial well-being?

Put simply, financial well-being is about measuring how well you manage your finances. It considers everything from the investments you’re making to how much you’re ordering from Uber Eats.  Having good or healthy financial well-being means you can meet your everyday financial requirements and manage debt responsibly. It also entails having an adequate emergency fund set up for when the unexpected happens so you’re prepared and can bounce back and prove you can manage your savings to achieve medium and long-term goals. 

Why is financial well-being important?

Financial well-being is crucial for a few reasons, including:

It allows you to remain in control of your finances

The most crucial reason for financial well-being is that it allows you to remain in control of your finances. This means being able to live comfortably within your means while still having the ability to treat yourself. 

It gives you the capacity to absorb a financial shock

Unfortunately, life often gives us lemons. Whether your dog ingested another sock and needs emergency surgery or your car battery died, some unavoidable events require us to pour money in as a way of damage control. Having good financial well-being means that when these incidents pop up, you have enough money in your emergency account to fund these issues without having to dip into your main accounts or worse - your savings account.  While it differs for everyone, we recommend having three to six months’ worth of your wages saved in an emergency fund. This will go towards more minor unexpected expenses and more significant financial issues, such as being made redundant or taking mandatory time off due to injury or illness. 

It gives you the freedom to make choices to enjoy the type of life you desire

Got your eye on a new bag? Want to head off on a weekend away with the family? Needing to treat yourself to a nice dinner? Being financially healthy means you can do all of these things without experiencing those feelings of guilt. Often, when we have poor financial well-being, these ‘treats’ become almost guilty pleasures - especially with the high cost of living.  Treating yourself to something you want should never be met with stress. If it is, talk to our expert financial advisors about a strategy that will work for you. 

It means you’re on track to achieve your goals

Financial goals look different for everyone. While some may be saving for a house, others might want to buy a new boat or go on an overseas trip. Good financial well-being means you’re on track to meeting (or exceeding) your short, medium and long-term financial goals. 

Three levels of financial well-being

There are three levels of financial well-being, each with its own traits.

Stage one: financial turmoil

When you’re in this stage, you likely have a lot of stress surrounding your financial position. This can lead to feelings of guilt about spending money on things that bring you joy (as we mentioned earlier) and can lead to avoidance, overspending or conflicts about relationships and spending.  If you have no savings, unpaid bills and a lot of stress surrounding this, it’s easy to fall into financial avoidance. The expert team of Inovayt financial advisors can help you get back on track and out of economic turmoil. 

Stage two: financial understanding

The second level of financial well-being is financial understanding. In this stage, you know you need to make some financial changes and are beginning to think more proactively about your financial future. It’s crucial at this stage to engage the help of a finance professional to ensure you’re on the right track and have set achievable financial goals. In this stage, our expert financial advisors look to empower you with the knowledge to make educated financial decisions in the future. 

Stage three: financial flourishing 

The final stage of financial well-being is financial flourishing. When you’re in this stage, you have the surplus income to live the life you want. However, while you’re in this stage, it’s still crucial to check in regularly with your financial advisor to ensure you’re on track to meeting your financial goals and protecting what you’ve worked so hard to achieve. 

How to calculate your financial well-being score

Your financial well-being score is a score out of 100 that consists of things like: 

• Age
• Income
• Emergency funds
• Debt
• Current savings
• Expenses 

To calculate your financial well-being score, check out our calculator or contact an Inovayt financial professional. 

How can a person’s financial situation affect their well-being?

A person’s financial situation can negatively affect their well-being if it isn’t managed correctly. Some of the most common symptoms you’ll notice if your finances are impacting you include: 

• Negative relationships with others about money
• Sleep difficulties
• Mood swings, anger, fear, fatigue
• Withdrawing from others
• Delaying the health care you need due to the cost
• Feeling guilty when you spend money

If you feel as though you’re struggling with mental health issues, there is always help available. Reach out to the team at Beyond Blue today for free.

How can I improve my financial well-being?

The good news is that there are ways you can improve your financial well-being if you are struggling. Besides talking to a financial professional, some of the ways you can improve your financial well-being include: 

• Know your numbers
• Track your spending
• Track your expenses
• Build a financial buffer
• Live within your means
• Start small

Want to know more? Take a look at our expense and budget planner calculators.

How can the Inovayt team assist with your financial well-being?

The team of expert financial advisors at Inovayt are here to help you with your financial well-being. We understand that everyone’s financial situation is different, so we ensure our advice and action plan are tailored specifically to your needs. If you’re looking for more advice on your financial well-being, get in touch with one of our experts today.