Your financial well-being is very important. Before the year ends, it is a must that you take a look at the state of your financial health. Knowing your current position in your finances will allow you to make the right decisions about your money. It will also help you make plans that will improve your financial situation next year.
All of this, of course, is in line with your pursuit to find financial happiness. This is a state wherein your contentment and confidence with your personal finances is at its peak. To achieve this means thinking about the well-being of your finances. Obviously, if your financial health is not good, you cannot find happiness with it. You will feel that something is missing and lacking. You will not feel contentment and that can ruin your ability to enjoy the income that should have been making your life comfortable.
LifeCare.com published the results of their survey in 2015 and it revealed various realities about the financial situation of American workers. It includes the following facts:
- Their finances are drained by their daily responsibilities and it leaves them unable to plan for their long-term goals.
- Their confidence is greater for their short-term than long-term situation.
- They understand that saving will make them more confident with their finances but that also makes them feel pressured and thus stressed to make it happen.
- They don’t understand the real concept of retirement planning and finding help to know more about it.
These facts tell us that the financial well-being of the average American leaves a lot to be desired. If you are identifying with these survey results, then it is evident that you need to take a look at the current financial situation. It will help you start over once the new year comes around.
3 Questions That Will Help Measure Your Financial Well-Being
Finding out if your finances are healthy is not as complicated as you think. There are a couple of questions that you need to ask yourself and your answers will determine if you are in a great financial condition or not.
Of course, your well-being will strongly depend on your personal preferences when it comes to the lifestyle that you want to live. It is important for you to look within yourself and be honest about your aspirations. Be ambitious but at the same time, be realistic about your capabilities too. That is how you can start setting the bar when it comes to your financial goals.
But before you can do that, let us go through the questions that you need to ask yourself about your finances to measure your financial well-being.
The questions will actually depend on your personal situation but here are the three most important ones.
If there is an immediate need for $500, can you get it without touching your savings?
This means you can get $500 from your existing budget. If your answer is yes, then it means your financial state is great. This means your budget is currently spending at least $500 beyond your basic necessities. You have enough extra money to cut down your spending by $500 without you feeling too deprived. This is great because it means you can survive an emergency without dipping your money into your actual emergency fund or your savings account. This puts you in a great financial situation. If your answer is no, you are not really in a financial crisis but your finances could use some improvement.
If you get sick, can you afford the medical treatments and professional care that will help you get better?
The next question is all about your health. If your answer is yes, then you know that your financial well-being is quite strong. If you do not hesitate to get treated for a sickness because you know you can afford it, then you are in a great financial position compared to half of the American population. According to a survey done by FamiliesUSA.org, a lot of insured Americans will not get medical treatment because of the high out-of-pocket costs. Here are the troubling statistics from this survey:
- 1 out of 4 Americans (insured for a year) skip medical care because they cannot afford it (e.g. follow up care, medications, treatments, etc.)
- Most of the adults who went without medical care are those from low to middle-income households.
- Those with high deductibles (e.g. $1,500) went without medical care.
- Half of Americans have a high deductible that exceed $1,500.
If your answer to this question is no, then you know that you need to work on your financial situation by next year.
If you lost your job, can you live off your saving for at least 6 months?
The final question that you need to ask yourself involves your emergency fund. This is an important part of being financially healthy. Nobody can claim to have a good financial standing if they do not have reserved funds. If your answer is yes, then you can consider yourself financially healthy. It means you can afford to lose your primary source of income and you will not go into poverty. Your savings is enough to help you survive. This survival will be made easier if you have other sources of income. If your answer to this question is no, then you have a lot of work before you. It is important to build up your emergency funds – not just to prepare for the time when you lose your job. It will provide you with financial security and relieve you of money stress.
If you answered no to all of these questions, you need to seriously consider your financial plans for next year. You have to make concrete plans to boost your emergency fund and increase both your savings and income. This is especially true if you have some debt. Make sure you think about this so you can improve your financial well-being next year.
How CFPB defines the well-being of your finances
Before you can really work on your financial well-being, let us take a look at another way you can define it. The best definition that we can give is from the Consumer Financial Protection Bureau. According to the study published on ConsumerFinance.gov, the well-being of your finances can be defined by four elements.
- You have control over your daily and monthly finances. This means you are aware of how your money is being spent and you do not feel controlled by your expenses. You do not worry about where you will get the money to help you pay for all your financial obligations.
- You are capable of surviving financial setbacks. This refers to financial emergencies that could put you in debt. Instead of borrowing money, you have to be in a great financial situation that lets you to survive these emergencies without feeling too stressed about the monetary side of the situation.
- You have the financial freedom to make the choices that will allow you to enjoy life. This is when you are free to spend on things that you enjoy without worrying if you can really afford it or not. It is not skipping the night out with your friends because you do not have the money. It is watching that Star Wars movie without hesitating because you can afford it.
- You are on track in meeting your financial goals. Finally, you are considered to have financial well-being if you can meet your financial goals. This includes your retirement savings, paying off debt or saving for a house. It is not enough that you are able to contribute towards these goals – you are on track with your contributions.
Think about all of these elements when you are studying your financial situation. It will help you decide if you need financial improvement next year or if your financial well-being is in good shape.
If you want to build you wealth to improve your financial well-being, here is a video that you can get valuable tips from.
