What is Financial Wellness?
Financial wellness (or financial wellbeing) refers to a person’s overall financial health and the absence of money-related stress. It’s the result of successful expense management.
Financial wellness is an important part of overall employee wellbeing which consists of physical, mental, and financial wellness.
In very simple terms, financial wellness means the art of efficiently and successfully managing one’s economic life. Financial wellness is a combination of knowledge about your finances, making good financial decisions, and consolidating financial decisions into other important aspects of your life. Moreover, financial wellness means the capability of managing efficiently the short term finances and making preparations for achieving long-term goals simultaneously. Money plays a very important role in our lives and it has to be managed in a very wise manner.
The very simple concept of financial wellness encloses some of the below-mentioned major factors.
- Making a proper budget and spending according to the budget.
- Keeping a concrete track of expenses.
- Being prepared financially for any kind of emergency.
- Having a perfect plan for the future.
- Being well-informed about the information which can be used in making correct financial decisions.
Benefits of Employer-Based Financial Wellness
The value of a good wellness solution has an impact across the organization, from employees to management and other decision makers.
- For Employees
A high level of financial wellness gives employees the ability to make better, more informed decisions and manage a successful long- term strategy. When employees have a comprehensive understanding of their finances, they can create effective strategies for dividing and potentially automating their paychecks between bill, savings, investments and other commitments.
Employees will be equipped with the skills, knowledge and tools necessary to develop and support successful financial outcomes. In fact, studies show that people who regularly plan ahead for emergencies and other irregular expenses are 10 times more likely to be considered financially healthy than those who don’t, regardless of income or other demographics.
- For Employers
Employers feel the effects of their staff’s financial health as well. Employees in stressful financial circumstances are less productive and less likely to remain at their jobs. PatMilligan, Senior Partner at Mercer, found that 22 percent of employees report missing at least one day of work to handle financial problems, 15 percent reported spending at least 20 hours a month working on personal financial tasks at work, and a full 20 percent have had to resign due to financial stress.
6 Ways to ensure Financial Wellness
1. When reality changes, tweak Investments accordingly
If you still have not made peace with the fact that each day we’re inching closer to a recession, high time you do. This implies a future liquidity crunch coupled with high inflationary pressures. Investors are almost always advised to take a long-term view but in this situation, it is equally important to set up short-term financial goals. Investment decisions during this period should be made keeping in mind your short-term goals. The investments should be adequately liquid to address contingencies and short-term needs.
2. Study your Financial Records closely
Here are some tasks you need to prioritize and work towards:
- Create a will to ascertain rightful owners of your assets
- Prepare a balance sheet with your assets/liabilities, share it with someone you trust
- Appoint nominees for all your investments/bank deposits
- Keep your life and medical insurance policies handy and readily available. Share the details with immediate family members
- Take stock of all your loans, existing EMIs and create a backup plan to service the debt
Your financial plan should incorporate these above-mentioned tasks. Ensure that your financial documents are appropriately managed and documented. Moreover, your financial assets should come to your rescue, should the need for immediate funds arise.
3. Create a Backup Plan
Fear you are next in line to a salary cut or job loss? Introspect and create a contingency plan to tackle this mishap. Re-evaluate your financial standing and capacity to service debts along with meeting necessary expenses. Investments could be redirected to liquid assets to avoid sudden cash crunch and the risk of being a financial defaulter. We often forget that such situations can strike anytime and entrap anyone, even us. Hence everyone needs backup. So keep a plan B ready to ensure regular income stream.
4. Check Insurance Status
The current pandemic has reiterated the importance of insurance in uncertain times, so opting for a life or health insurance plan is another prudent decision, if you don’t have one. If you are yet to pay the premium on life/health insurance for the financial year 2019-20, as per the recent relaxation by the government, you may pay the same by June 30, 2020 and claim tax deduction for this financial year.
5. Pay Essential Bills
If you are worried about being able to pay all your bills, prioritize essential bills first. Sorting through your bills and prioritizing them serves two purposes:
- As a budgeting exercise, it guides you to deliberately think through what you spend your money on. You may find that some bills can be eliminated.
- By knowing beforehand which bills you will pay first, you won’t have to scramble to decide if you do find yourself in a bind later.
Both of these outcomes will help reduce your financial anxiety, and hopefully allow you to sleep better.
6. Find ways to earn more Money
You can only cut a budget so far, and you’ll want to be careful that your tight budget isn’t a source of additional stress. Another way to ease some financial tension is to take steps to increase your income.
It may seem difficult to increase your income in the current economic environment, but it isn’t out of the question. The simplest way to earn more is to work a few extra hours each week if your employer will let you.
If increasing your hours isn’t an option, look for other ways to earn money. Some new unconventional ways to earn money may be available now because of the pandemic. For example, families with children who are schooling at home may find they have less time to take care of normal household chores than they did before. Many are willing to pay someone to do a grocery pickup, mow the lawn, help the children with online assignments or watch them while they attend school virtually.
Why Financial Wellness Matters
Unsurprisingly, financial stress has a negative impact on both the personal and professional lives of your employees – and by extension on your organization. We’ve listed some of the reasons why financial wellbeing is important below.
- Presenteeism & Absenteeism
According to the Society for Human Resource Management, financial stress results in a 34% increase in absenteeism and tardiness. Employees who worry about money also miss almost twice as many days per year compared to their unstressed colleagues.
Money-related stress can also lead to an increase in presenteeism; employees coming to work despite being physically or mentally unwell. While it may seem less bad – people are physically present in the workplace after all – presenteeism seriously affects organizations and can cost them a lot of money.
- Happy & Healthier Employees
Worrying about finances can result in a wide range of (serious) health issues for employees, varying from depression and anxiety all the way to ulcers and even heart problems.
In other words: if you can take your employees’ financial worries out of the equation, that’s one step closer to a healthier and happier workforce.
Apart from the fact that financial stress affects an individual employee’s health and morale, it will eventually also weigh on their team members and other colleagues.
- Productivity Loss
When you know that financial stress leads to an increase in absenteeism, presenteeism, and ill employees, it’s no real surprise that it also affects their productivity.
6 Tips to Achieve Financial Wellness
Wellness tips for your finances that will help you stay financially healthy. But remember that everyone’s financial situation is different, so it is up to you to select the proper mix of resources that work best according to your needs.
1. Reliable income
Making money is definitely the cornerstone of financial wellness and increasing your income can help you obtain your goals. You do not need to be a millionaire, but it’s important to obtain some level of income stability. Being financially well starts with having a reliable income and knowing at a consistent time, you will expect to be paid a certain amount. Steady and reliable income is one of the cornerstones of financial wellness.
Even as your earnings increase, try to live off a set income level and add to your investments. Allowing your interest-earning accounts to grow will help you offset any downturns or emergency expenses. You have a steady and reliable income when you know when your next few months’ of paychecks will arrive and approximately how much money they’ll contain.
Do you know where your money is going each month? Even if you don’t like budgeting or planning, it’s good to set goals for yourself. You are more likely to stick with it when you have goals to reach and can see progress. By creating a plan, you are visualizing the what, why, and how you will get there. If you don’t already have a household budget, grab your most recent bank statement and look at the total amount of money you have coming into your household each month. Then, factor in fixed, required expenses things like rent or mortgage payments, utilities, insurance, and more. With the money you have left over, assign a category to each dollar for flexible expenses.
3. Emergency Fund
If you do not have an emergency fund, now is the time to start building it. The goal of an emergency fund is to have available funds for when you are dealing with unemployment or you have an unforeseen cost. You won’t stress about the money because you have a nice cash reserve that you can access quickly. Finance experts often say that you should have at least three to six months’ worth of expenses in your emergency fund.
4. Reduce Debt
Paying down debt can seem scary or tough, but with some proven strategies, you can make it happen, bit by bit. Our tips for reducing debt can help you find the right methods to trim your debt into something that feels manageable.
Before making a plan to pay down your debts, know what you owe. You can use this debt log to get a sense of the amount of debt you owe, including interest rate and projected payoff date, and who you owe it to.
5. Build your Savings
Once you get a handle on your finances, you can start to map out life events and large purchases, so you can begin saving! Planning ahead is always helpful, and once you get a handle on your current financial plan, set some goals for what comes next. By building a plan, you have a road map to help guide you through the rest of your story. Putting even a small amount into savings on a consistent basis is one of the best ways to get your savings to grow so you can meet your goals, small or large. Set your own personal savings rule to live by and make a plan on how to achieve it. Prepare for life events and large purchases by planning ahead.
6. Retirement Planning
Retirement planning determines retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, sizing up expenses, implementing a savings program, and managing assets and risk. Future cash flows are estimated to gauge whether the retirement income goal will be achieved.
Retirement planning is ideally a lifelong process. You can start at any time, but it works best if you factor it into your financial planning from the beginning. That’s the best way to ensure a safe, secure and fun retirement. The fun part is why it makes sense to pay attention to the serious and perhaps boring part: planning how you’ll get there.