What measuring stick do you use when you evaluate how well you are doing financially? In a pre-Covid America, far more people would have responded with “net worth,” “the balance in my retirement fund” or “having little-to-no consumer debt”. And while all those measures and metrics can work as useful gauges of how we’re doing with money, the most recent holistic metric is financial wellness or financial health. Post-Covid, being able to live without stress and having a plan for the future take priority over numbers.
Financial health means you can live the life you want with minimal monetary stress and work toward long-term goals while absorbing any financial shocks along the way. This transition came about as we recognized the implications of chronic financial stress in our country, particularly during the height of the pandemic. Significant research on financial health and wellness has been conducted in the last 10-15 years. Below are a few things that stand out as differentiators in financial outcomes across age groups, income levels, gender, racial and ethnic groups, and geographic regions.
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#1: When it comes to financial health, confidence is key
Research has shown that among two groups with comparable levels of financial knowledge but different levels of confidence, the more confident groups consistently and significantly outperform the others. So, it’s not just about knowing what to do in any given situation with your money, it’s also about entrusting yourself to make good decisions.
Unsurprisingly, confident individuals tend to make more positive decisions while less self-assured individuals tend to avoid choosing at all. Avoidance is an expensive decision when it comes to paying down debt, investing, or getting ahead financially.
So, what can the average American do? If you’re at a loss toward making an important financial decision, first learn more about the topic. That way, you can move with confidence in the direction you think is best. Doing something good, even if it’s not perfect, is better than ignoring it altogether.
#2: Cultivating a personal sense of meaning and purpose improves financial wellness
If you are unhappy with your financial situation, it may stem from a basic disconnect from money to your personal values and goals. Have you ever thought about or tried to write down a personal meaning or purpose statement? Consider evaluating your financial decisions through the lens of personal meaning. Or filter your choices through your values and align your decisions with your life goals.
This approach can help foster financial resilience, keeping stress and anxiety at bay. It could also help you cultivate a sense of satisfaction and contentment with your life and circumstances—even when you are going through a lean financial stretch. This approach also keeps you grounded in your values and goals when your income is increasing, or your financial opportunities are building.
Studies show that folks who are in tune with their values and goals are better prepared to act when decisions come up – across all domains of life, including health, fitness, relationships, career, or money.
Cultivating a sense of meaning in your life and focusing on your purpose can cultivate a sense of contentment with your financial situation. When your decisions with money are playing into a larger narrative of building the life you want, your efforts can feel more content and fulfilled. The other great advantage of filtering all financial decisions through your purpose is that it can replace the tendency to compare yourself to others.
There is no need to evaluate yourself against friends, family, coworkers, or neighbors. By using your goals and values as your guide, you can feel confident and content with your decisions and begin to enjoy the benefits of financial health.