How to Achieve Financial Wellness: Tips & Tricks

You’ve probably heard the term financial wellness, but what is it, exactly? The truth is that financial wellness means something different for everyone. For some people, taking the first step toward financial wellness might mean paying down credit card debt. For others, it might mean beginning an emergency fund. 

We’ll take a look at the many components of financial wellness and go over some simple steps that you can take to improve or maintain your finances.

What is Financial Wellness?

Being financially well means having enough money to cover your immediate expenses, pay off any emergency bills or fees that pop up and have a steady income that covers your lifestyle. Financial wellness also includes other factors, such as your credit score and saving habits and can depend on your age, your job, where you live and your present goals.

The Consumer Financial Protection Bureau (CFPB) defines financial wellness with these crucial components:

  • Security means being able to cover day-to-day and month-to-month expenses without worry. It means having enough money coming in to cover all of your necessities as well as a few extra things you want.
  • Future security involves being able to cover emergency expenses or unanticipated bills.
  • Freedom of choice refers to being able to choose where you want to live, where to raise your children, what you want to eat and wear, within reason. It means having enough money for more than just the absolute bare necessities.
  • Future freedom of choice means getting on track toward future financial goals like buying a home, sending a child to college or covering your retirement. It’s having a plan for the future and understanding how you can reach your goals.

While some of these may seem pretty lofty, there are plenty of small steps that you can take to propel yourself toward each of these goals. 

What Does Financial Wellness Look Like?

Understanding the abstract concept of financial wellness is one thing — but what does financial wellness look like in real life? Here’s how financial wellness can take shape in your life. 

Steady and Reliable Income

Steady and reliable income is one of the cornerstones of financial wellness. A reliable income doesn’t mean that you have to be a millionaire or you make a certain amount of money every month. You have a steady and reliable income when you know when your next few months’ of paychecks will arrive and approximately how much money they’ll contain. 

A Robust Emergency Fund

Would you be able to pay the bills if you were injured in a car accident or your home’s heating system suddenly called it quits? Emergency expense funds are liquid cash savings, which  simply refers to cash that you have fast access to, not cash that’s tied up in an investment like real estate. You can use your liquid emergency funds to cover unexpected bills, fines, medical debt and anything else that life throws your way. Finance experts often say that you should have at least three to six months’ worth of expenses in your emergency fund. 

do you want to mention MoneyLion’s $500 credit builder loan — great for emergencies. or you could say “Starting to save any amount, even if it’s $5 a week, will start making a difference. Apps like MoneyLion can help you manage your money and offer savings advice and tools to make it easier.”

A Reasonable Budget

Do you know where your money is going each month? Whether you earn $100 a day or $100 per hour, you might consider having a household budget. 

Good budgets assign a job to every dollar in your paycheck, from necessities like rent to entertainment. Spending less than you earn is often cited as the most important step to financial wellness.

A Plan to Tackle Your Debt

Having some form of debt is normal. From mortgages to student loan debt, going into debt is sometimes inevitable and beneficial. What’s important is that you’re making progress to reduce your debt over time. 

Total financial wellness means understanding exactly how much money you owe and to whom you owe it, as well as what your interest rates are on each loan. It also means creating an actionable plan to pay off your debt — and putting that plan into action by making payments each month. 

Some Form of Retirement Planning

Are you saving for retirement? Skipping retirement contributions is actually pretty common. The 2018 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI) found that over 35% of American adults don’t have any money saved for retirement. 

Planning for retirement early is a crucial aspect of financial wellness. Whether you’re saving money in an employer-sponsored 401(k) plan or independently in an IRA, it’s a great idea to have some form of retirement savings as soon as you reach your early twenties to take advantage of compound interest and account growth. The more time your money has to grow, the more time it has to benefit from compound interest (which means earning interest on top of interest)!

A Good or Great Credit Score

Good credit is a powerful tool that you can use to get a loan, rent a better apartment and receive the best interest rates if you decide to buy a home. Your credit score is a three-digit number that sums up how reliable you are at paying back debt. Your actions influence your credit score. For example, if you pay a credit card or loan bill on time every month, your score will go up over time. On the other hand, if you miss your payments, your score will go down. A higher credit score tells banks and lenders that you’re a reliable and less risky borrower.

Financial wellness includes knowing your credit score and monitoring your credit report. If your score is low, it also includes creating a plan to raise your score — and putting that plan into action. 

How Should I Be Managing My Finances?

Now that you understand what financial wellness looks like, it’s time to evaluate your own finances. Does your financial situation need a tune-up? If so, begin by taking a few of these steps. 

Monitor Your Credit Score

Did you know that you don’t need to pay money to view your credit score? Look for a bank or credit card provider that offers free credit monitoring services. 

Understand your score, monitor it regularly and create a plan to improve if your score is low. MoneyLion’s app offers free credit monitoring to members. You can monitor your credit score, payment history, age of credit, credit utilization rate, credit inquiries, loans, debt and more. 

Make a Budget… and Stick with It

If you don’t already have a household budget, sit down with the members of your household and create one. Grab your most recent bank statement and look at the total amount of money you have coming into your household each month. Then, factor in fixed, required expenses — things like rent or mortgage payments, utilities, insurance and more. With the money you have left over, assign a category to each dollar for flexible expenses. For example, if you love to try out new restaurants, you may want to budget $100 a month for eating out. Don’t forget to budget in a monthly contribution to an emergency fund if you don’t already have one.

Once you’ve made your budget, try your best to stick with it. Pay yourself first and save money as soon as you get your paycheck. If you overspend in one category, don’t be afraid to move money from another to cover your expenses. At the end of the month, you can reevaluate your budget if you had a hard time following it.

To make the budget planning process easier, you may want to open an account with a bank like MoneyLion that offers an easy-to-use app which allows you to track on-the-go spending and adjust your budget as needed.

MoneyLion also offers the Financial Heartbeat, which offers a daily personal finance tracker that measures the five pillars of your finances (Spend, Save, Shield, Score and Strive) and sums them up into a single score (1-10). Your Financial Heartbeat score is calculated by looking at your spending and saving habits, your level of insurance against the unexpected and how you manage debt. The financial tracker changes color based on your progress — you can log in every day and check your “pulse.”

Start an Emergency Fund

Everyone should have an emergency fund. If you have nothing in savings, putting away just $100 a month is an amazing start. When you’re creating your budget, consider how much money you spend per month on necessities. Use this as a rough estimate to start saving toward a three- to six-month emergency expense fund. 

Understand Your Debt

Sit down with all of your credit cards and loan statements and write down how much you owe on each of your accounts. Then, look up the interest rate on each loan or account. This will tell you which loans accrue interest the fastest and which ones you should pay down first. 

4 Tips for Reaching Financial Wellness with MoneyLion

Are you starting to feel overwhelmed by the financial wellness picture? Don’t panic — maximizing your financial health is much simpler than it seems if you approach it with a plan. Use these tips to make the journey toward financial wellness easier. 

Tip 1: Correct Credit Report Errors

Does your credit score seem much lower than it should be? Are you making all of your regular payments but still not seeing any progress? You might have an error on your credit report. According to data from the Federal Trade Commission, about one in every five Americans has an error on his report — and these errors can lower your score. 

Once every 12 months, pull your credit report from each of the three major credit reporting bureaus from AnnualCreditReport.com and look for errors. If you find one, report it as soon as possible. 

Tip 2: Choose a Bank With Low Fees

Hidden fees can drain money from your bank account — and banks themselves are one of the biggest fee offenders. From minimum balance requirements to monthly maintenance fees, you may not even be fully aware of how much money your bank is taking from you. 

Choose a bank with no minimum balance requirements, maintenance fees or overdraft fees. This will allow you to save more of your money to put toward things like retirement or an emergency fund. 

Tip 3: Take Advantage of Credit Builder Loans

Credit builder loans are a unique type of personal loan that can help you raise your score. When you take out a credit builder loan, you pay back the money slowly over time, making sure that you make on-time payments each month. 

Your payment history accounts for about 35% of your total score calculation. This means that making regular on-time payments is the fastest and most effective way to boost your score. About 70% of MoneyLion users who take out a credit builder loan see their scores increase.

Tip 4: Start Investing ASAP

It’s good to start investing as early as possible because investing early allows you to maximize your money. The earlier you begin investing, the more interest you’ll accumulate. As your interest begins to accumulate, you’ll start earning interest on top of that interest — this is called compounding. Compounding interest can be a powerful force as you save for retirement.

Contrary to popular belief, you don’t need thousands of dollars to get started investing. For example, you can open a no-minimum managed investment account through MoneyLion. You can get daily personalized financial advice for free simply by linking your financial accounts in the MoneyLion app

MoneyLion assesses your unique spending and income patterns and credit to deliver tips on saving money and building your credit. You’ll also get five new personalized pieces of financial advice and resources every day. 

Taking Steps Toward Your Financially Sound Future

Financial wellness doesn’t happen overnight. You need to take constant, intentional steps toward your financial goals to slowly work your way toward a total picture of wellness. Luckily, with the spread of the internet and online banking, there are now plenty of free and low-cost resources you can use to safeguard your financial life.

Are you ready to get started on the path toward a better financial future? It’s never been easier to open a fee-free account with MoneyLion. Download the MoneyLion app today and take the first step toward healthier finances.