Money for Life

Financial Wellbeing: What It Is and How To Get It

Episode Summary

Do you have a sense of what it looks and feels like to be financially well? And do you know the most important areas to focus on if you or someone you care about wants to be better with money?

Episode Notes

Do you have a sense of what it looks and feels like to be financially well?

And do you know the most important areas to focus on if you or someone you care about wants to be better with money?

Being financially well is one of the basics that when not addressed can drag down our quality of life and negate the effect of happiness boosters. So investing in improving your financial wellbeing is money well spent for your happiness and quality of life.

In this episode discover three stages of financial wellbeing, how to evaluate your level of financial wellbeing and where to focus to become more financially well.

I also share the two following stages beyond wellbeing, which together form the Money for Life journey to flourishing.

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Check out my free course to help you take control of your money, to stress less, save more and afford a life that lights you up!

For my free course visit www.MattHern.com.au and follow FB @matthern, LinkedIn @matthern IG @matthern_moneyguide

Episode Transcription

Many of us would have a sense of what it looks and feels like to be physically well.

Perhaps it’s a level of aerobic fitness, being in a medically healthy weight range, getting enough sleep and not being ill. And when we get off track, we probably have an idea of what it takes to become physically well again.

But do you have a similar sense of what it looks and feels like to be financially well?

And do you know the most important areas to focus on if you or someone you care about wants to become more financially well?

Hi, this is Matt Hern and welcome to Money for Life, where I blend insights from social science and personal finance to explore how you can get more happiness from your money and afford a life that lights you up.

Financial wellbeing is part of the domain called “Environment” in the World Health Organisation’s Quality of Life framework, which I’ve been exploring in the last two episodes.

Financial wellbeing is one of the basics, that when not covered can drag down our quality of life and negate the effect of happiness boosters.

That’s because not being financial well can feel like we may not be able to afford basic human needs for survival and security – those lower layers of what’s become known as Abraham Maslow’s Hierarchy of Needs. Feeling like we can’t afford our essentials can trigger a lot of stress.

So investing in improving your financial wellbeing is money well spent for your happiness and quality of life.

Financial wellbeing is different to financial literacy and financial capability.

Financial literacy is what you know and understand about money and financial concepts.

Knowing is not doing though, and that is where financial capability comes in. Financial capability is about our financial decisions and behaviours.

Even smart, well-educated people often have unhealthy financial habits and make seemingly dumb financial decisions. After-all we’re all human.

I think of financial wellbeing as the result or outcome of our financial decisions and habits.

Said another way, financial literacy is what we know about how money works.

Financial capability is our skills and expertise in applying what we know about money.

And that can lead to being financially well and to financially flourishing. 

Using your money to flourish is what I hope this Money for Life podcast will help you achieve.

 

So, what does it look like to be financially well?

In recent years several definitions have emerged from researchers across the world.

Since late 2017 the Australian Government’s Financial Capability Strategy has used the following definition:

"Financial wellbeing is when a person is able to meet expenses and has some money left over, is in control of their finances and feels financially secure, now and in the future."

Captured in that definition are three dimensions of what it looks like to be financially well,

  1. Meeting expenses and some money left over
  2. Being in control
  3. Feeling financially secure

And those dimensions are, now and in the future.

In 20 years working as a financial planner and money coach some of the behaviours or capabilities that lead to financial wellbeing are:

When people are feeling financially well, they tend to feel like they are getting ahead rather than just getting by.

Feelings of stress, struggle and overwhelm in relation to money have been replaced by feelings of ease, clarity of what to do and confidence in affording the experiences that matter most to them.

Having now heard some of the characteristics of what it looks and feels like to be financially well, and thinking of financial wellbeing as a continuum, how would you rate your current financial wellbeing out of 5?

Where zero is low financial wellbeing and 5 is being in control, meeting expenses with some savings left over and feeling financially secure, now and for the future.

If you are able, pause playback and rate your financial wellbeing out of 5 now.

 

Now that you have an idea of what financial wellbeing looks like let’s explore what it takes to improve your financial wellbeing.

Just to reiterate, since money is one of the key facilitators of the experiences that provide a quality of life and experiences light us up, it makes sense to at least invest in being financially well.

That is how you can afford a life that lights you up!

Since financial wellbeing is a continuum there is a journey you’ll go through to achieve wellbeing.

I think of that journey as having three stages with fuzzy boundaries between the stages.

  1. Survival
  2. Security
  3. Wellbeing

Depending on which stage you fit into most of the time, there are different actions that are best for you to focus on. Those actions become a foundation for the actions of the next stage.

If you’re living pay-to-pay or worry about money daily then you are probably in the first stage, feeling like you’re in survival mode.

In survival stage the priority action is control. Invest in learning a budgeting system that helps you stop going backwards and being caught out by unexpected expenses. 

A good budgeting system has these three key elements:

Without a plan of what’s affordable, we can end up overspending on our priorities, which can mean we miss out on other experiences that also matter.

Without a process, we can very easily get off track, especially since the forces of our consumer-culture are designed to pull us that way.

Without a sense of the purpose of money in our lives, we can end up charging down a pathway of earning and spending that turns out to be unfulfilling.

If you feel this stage and action may be relevant to you check-out my free course “6 key ingredients to saving more while still enjoying life”. In the course I expand on those three elements of a good budgeting system. Visit my website matthern.com.au to subscribe for free.

 

Once you’re in control of your day-to-day money decisions you won’t be worrying about money every day. You’ll begin to get ahead and be consistently saving every pay.

That’s a solid foundation to move you into the Security stage.

As you move into the security stage you may be saving money most pay cycles but too many unexpected expenses are still arising that eat away your savings. So if you zoom out on a year-by-year basis you may not yet getting ahead.

Because of that, whilst you’re not worrying about money daily, you do still worry about money about once a month.

In the security stage your focus is on building contingencies that enable you to absorb unforeseen expenses, you know, like a pandemic or other misfortune.

There are many ways to building your contingencies including setting aside any extra income you earn, selling unused items and finding more ways to save on your everyday spending.

I recommend you target having a contingency fund that would cover a minimum of three months of your total living costs, and ideally at least six months of living costs.

That may seem like a lot, but the pandemic has demonstrated that even six months may not be enough.

As your savings building your money time horizon increases from being focused pay-to-pay, through looking year-to-year and then beyond to more long-term. At this point you are entering the wellbeing stage.

As you enter the wellbeing stage your best focus is on broader planning of your overall financial situation to ensure you are on track to afford all important life goals.

Start planning to be on track to afford a life that lights you up.

 

To recap, the three wellbeing stages are Survival, Security and Wellbeing.

The three priority actions in order are Control, Contingencies and Planning.

 

Beyond those three stages are two other stages that all together I refer to as the Money for Life journey.

If you think of the three wellbeing stages as the Basics for quality of life, the next two stages are the Boosters that take you from being well to flourishing.

Those two booster stages are Fulfillment and Flourishing.

If those two stages are of interest, then please do subscribe to this podcast because helping you financially flourish is what this Money for Life podcast is all about.

 

Next episode I’ll delve into another of the WHO QOL domains.

If you’d like some extra guidance to improve your financial wellbeing and afford a life that lights you up then check-out my free course “6 key ingredients to saving more while still enjoying life”. Visit my website matthern.com.au to subscribe for free.

I’m Matt Hern and this is Money for Life.

Who do you know that would like to feel less stressed and more confident with their money? Please share this episode with them so they too can afford a life that lights them up.