Consumer Financial Protection Bureau includes the following aspects as indicators of financial well-being.
- You are capable of dealing with unexpected expenditures with your financial cushion.
- Your daily and monthly finances are under your control.
- Your personal financial goals are within your reach.
- Your finances facilitate you to enjoy your life by leaving room for your personal entertainment.
As you can see, financial wellbeing is subjective and cannot be determined by a particular figure. It is a feeling and not an objectively measurable experience.
An individual can experience financial well-being or absence of it regardless of what he or she is earning.
It primarily comes from financial security and freedom of choice at present and in the future. Just your income or savings don’t determine your financial well-being but also the fact if you have accrued debt, time, and means to spend your money and your satisfaction level from your overall income.
Factors that create financial well-being
- Social and economic environment: Are you able to provide a good social environment for yourself and your family with your income capacity?
- Personal attitudes: How do you think and feel about money and handle your finances?
- Content of financial decisions: How do you present and perceive a particular financial decision?
- Knowledge and skills: Do your knowledge and skills allow you to earn a sufficient income?
- Available Opportunities: What income generation opportunities are available to you?
- Financial Behavior: What do you do with your money?
- Personal financial well-being: How satisfied do you feel about your finances?
5 Pillars of Financial Well-being
- Your present and future finances don’t keep you awake at night.
- Your debt amount is low or non-existent. In case you do have a debt, you know how you can pay it off without any hassle and there are no exorbitant interest rates or penalties on your debt.
- Your disposable income is enough to support a comfortable lifestyle for you and your family.
- You have a financial cushion that would take care of you in case of any major unexpected expense or loss of income.
- You are capable of making wise and informed decisions regarding your future finances.
These five pillars of financial well-being seem very obvious but there are many who can’t meet even one of these requirements. Inability to meet the above parameters implies a lack of satisfaction in your financial life that can cause stress and feeling of inadequacy. This can hamper other aspects of your life as well if the feelings of frustration grow.
Financial wellbeing may look like a dream if you are currently under huge debt or have an unstable source of income that is barely enabling you to make ends meet. However, with some guidance and proper planning, you can gradually pull yourself through and reach a stage where your finances keep you feeling satisfied.