What Exactly Is ‘Financial Wellness’ – And How Do You Know If You Have It?

We talk a lot about mental and physical health, but our financial habits can play a big part in our overall wellbeing too.

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With the current cost of living crisis, achieving true financial wellness can seem like a far-off dream. However, it doesn’t have to be. Money being a concern is nothing new of course, but lately, people are really feeling added pressure.

The past year has transformed our relationship with money, nudging us all to think about how and what we’re spending our money on and since the pandemic we’ve seen a huge increase in the stress that many people feel around their financial situation, particularly business owners.

In fact, according to a recent study submitted to the Competition and Consumer Protection Commission (CCPC), 1 in 3 people have reported that they are ‘just getting by’. While there are so many circumstances beyond our control, it can help to assess what you can do within your own means, to achieve financial wellness.   

What is Financial Wellness?  

“Financial wellness describes your ability to manage current as well as future financial needs,” Caz Mooney tells STELLAR. Caz cleared €15k debt and saved a deposit for a house in just one year. She and her husband cut out all unnecessary spending when they grew frustrated by renting and living paycheck to paycheck. Now the Irish mum of three shares her budgeting tips and affordable food shops on Instagram @Irishbudgeting and released a budget planner to help others follow her footsteps.

She explains that assessing your financial health has a direct impact on the financial pressure you may feel and can ultimately affect your overall health and wellbeing for the better. In short, it’s an ongoing commitment to a better quality of life. Just picture it, you have a handle on your finances, you know what to do next in order to achieve your goals and you regularly practise good money habits.

While this is good in theory, you may feel it’s also a little bit overwhelming and maybe even just a tad unrealistic. However, you’ll soon see that building the right foundation is a great first step. “Start by taking small steps towards financial wellness,” explains Caz. “So, this month we might start by getting to know your current spending, by looking back at last month. Print off a bank statement, grab a few highlighters, and highlight your different categories of spending with different colours.

“Once you start to see the total you are spending in each category, you will begin to see where you can make changes. This will be the foundation for your budget.” As your first financial goal, Caz recommends setting up your own emergency fund, should an unexpected expense come your way.

“Ideally you should be aiming for an emergency fund of €1,000 – this takes time to build, however even aiming for €200, to begin with, could help with a lot of situations! After taking these steps in your first month, you can then start to create a budget, plan for future expenses and really make some positive steps with your finances.” 

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The Key Factors

Just like any other form of wellness (nutrition, mental, fitness), there are certain components that contribute to your overall financial wellness. And as with the other areas of wellness, it can depend on our personal circumstances and means too. Nutrition, for example, is a lot easier for someone in a privileged position, and money is no different. So with our personal circumstances in mind, it can be helpful to have a budgeting or financial plan in place to help you hit your goals.

Caz recommends not only budgeting for every pay cheque but also budgeting every cent you earn. This will allow you to be more mindful of what you’re spending. “It is so important that your budget is realistic and isn’t too strict,” notes Caz. “If for example, you reduce the amount you are budgeting for, let’s say food, too much, you may find yourself miserable or else breaking the budget for a takeaway. Like a bad diet, restricting too much will have a negative effect because it isn’t sustainable long term. Instead, gradually reduce spending in your categories, until you are sure that you are setting aside a realistic amount to spend. Also, I highly recommend setting aside some money in your budget for you to spend on whatever you want!

“It’s fun, it won’t set you back too much, instead, it will have the opposite effect and help that journey be a sustainable one!” If you’re still unsure of how much to actually set aside for what, one common strategy is the 50/30/20 rule where 50% goes to needs, 30% to wants, and 20% to savings. These numbers can of course be adjusted to suit your budgeting goals. So have a play around and find what suits you best. 

Another factor to consider when budgeting is setting up a sinking fund for large expenses throughout the year such as Christmas, birthdays and holidays. “Sinking funds are where you set aside a little each pay cheque towards these expenses, breaking that large expense down into manageable pieces. Unlike an emergency fund (which is unexpected), you know these expenses are coming up,” explains Caz.

“I like to save into sinking funds by priority, as I am more motivated when I know that expense is coming up, but if you want you could also divide the total you need to save by the number of paychecks you have until the date it is due. I would recommend having no more than 5-7 sinking funds at any one time, otherwise, it can feel overwhelming!” 

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Next up is having a positive mindset. Now, I’m not suggesting you can wish away your money troubles, but money can often be viewed in a negative, fearful way. Caz feels that if you continue with that outlook when it comes to your finances, your journey will actually feel longer and more difficult.

“One way that I find really helps is to set a goal for each month, making sure it is achievable. Once you do achieve that financial goal, you should celebrate that win, no matter how small,” notes Caz. This in turn will help to motivate you each month to continue to work towards those larger financial goals. Because at the end of the day, what’s the point of having a plan and a few good habits if you don’t believe they’re going to work?

Having a healthy relationship with not only your money but also your own ability to manage it, is key to having a positive money mindset. Caz also reminds us that it’s important to realise that the relationship we have with money at this current moment in time will completely change once we start to take control. “Instead of your money controlling you and the lifestyle you have, you will be creating that budget, setting financial goals, and you will control your money. It is empowering,” she adds. 

Emotional Spending 

Emotional spending can also have a negative impact on your overall financial wellbeing and can ultimately set you back from reaching your financial goals. So, if you find yourself guilty of this, Caz recommends taking some time to identify your triggers. Reflecting on her own relationship with money, Caz admits she herself would often impulse spend after receiving her paycheque.

“Early on in my financial journey, I realised that after years of living paycheque to paycheque, I would impulse spend when I was first paid, and regret it later in the month,” she says. “My spending was online mostly, and I was triggered by sales and the feeling that spending money would help me to get over the difficult feeling I’d had the month before when I had no money. A vicious cycle.”

So how did she turn this around? “I unsubscribed from the many emails that hit my inbox daily, I allowed myself to spend but with a budget, and I switched to cash. Cash budgeting was massive because it was so much harder to overspend when it’s your hard-earned money, there in your hand, instead of numbers in an account that you can tap away. Goal setting can also really massively help here, set those goals, and don’t be afraid to put them where you will be looking at them every day!” 

While we may not be able to print ourselves more money or have control over systemic problems that dominate economic inequality, for that matter, financial wellness is an ethos that can give us the tools we need to improve our money management. So, as you embark on your financial wellness journey, remember everything new takes time and effort. Set aside a few hours to establish your foundation and build a plan you’re eager to follow – you’ll soon find yourself getting excited about budgeting when that monthly pay cheque comes in. Or maybe that’s just me… 

 Caz’s top 5 money-saving tips  

  • If you struggle with overspending, I highly recommend trying cash budgeting, even just in the categories you overspend in. 
  • You will spend so much less money on your food shop if you take a few minutes before you go to check the presses (see what you need or already have), create a meal plan and make a shopping list. 
  • Look at your subscriptions and direct debits, €10 a month for an app you haven’t used in months or a tv subscription you rarely watch adds up. Don’t be afraid to cancel, it takes minutes to re-join if you change your mind. 
  • Try ‘No Spend Days’. A no-spend day is a day where you do not spend any money from your everyday spending. Setting a goal of a certain number of no-spend days in a month can help to reduce your impulse spending, and encourages you to think of ways to have fun without spending money. 
  • Whatever your current financial goal is, every single cent you are putting towards that goal counts! Whether it is paying off debt, or saving, no matter how small it all helps bring you one step closer!

This article first appeared in the September 2023 issue of STELLAR magazine.