An Essential Guide for Achieving and Improving Financial Wellness

Key Takeaways

• It is important to note that financial wellness is not a goal as much as it is an ongoing journey of tweaking goals and, when necessary, pivoting altogether.

• Those who achieve financial wellness also gain the peace of mind that accompanies the assurance that they can pay their bills, handle emergencies, and comfortably manage their monthly expenses.

• Financial wellness can be defined in part by what it entails, and that is every aspect of one’s finances and how, together, they affect their mental, physical, and social health.

The start of a new season is a good time to make sure one’s finances are in order. After all, a recent Pulse of the American Worker study reports that nearly seven of 10 employees worry about their financial security.

To help get and stay on track, the following is a comprehensive and easy-to-follow guide for investors and others seeking to understand and improve their financial wellness, and thus their life quality.

What is Financial Wellness?

Financial wellness can be defined in part by what it entails, and that is every aspect of one’s finances and how, together, they affect their mental, physical, and social health.

Financial wellness is not a goal as much as it is an ongoing journey of tweaking goals and, when necessary, pivoting altogether. Building and maintaining financial soundness and equilibrium can keep the bills paid, but even more than that, promote stability, health, and life success. 

However, too many people still have problems paying bills, have insufficient emergency and long-term savings, have no investments, and are not fully prepared for retirement. Having said that, a person’s financial wellness is unique to their particular goals and where they are in life.

The Core Components of Financial Wellness

While everyone’s goals and journeys are different, there are fundamental components of financial wellness, including:

• Savings. It is crucial to have a savings plan and build up reserves. For one thing, it keeps people from having to use credit cards to respond to every unexpected expense. Having savings is also key to one’s retirement long-term financial stability.
• Education. Being financially literate can help with financial decisions, including those regarding investments, and can help people avoid taking actions that could derail plans, or worse.
• Retirement. It is vital for people to plan for the time when they are no longer working. A more detailed financial plan will likely come into play when individuals reach their 40s or 50s. Yieldstreet’s retirement calculator is a helpful tool.
• Budgeting. Credit card issuers make it so easy to get into debt. It is essential to, first, track spending, see what expenses can be cut or reduced, then make a realistic budget.
• Tax planning. A key goal should be to make moves that will minimize tax obligations.
• Insurance. Life and disability insurance are essential for people to protect themselves and ensure financial wellness.

Why Financial Wellness Matters

Financial wellness is not just about money. In fact, financial health is a vital part of one’s overall wellness. Taken together, the facets of a person’s financial state determines individual financial health. In turn, that affects every aspect of a person’s wellbeing. 

Components of Financial Wellness

• Expense and debt management.  Managing expenses, and by extension, debt, is a way to gain control of one’s obligations through budgeting and financial planning.
• Insurance coverage. In addition to income replacement, having life and disability insurance help diversify holdings, protect against risks, and potentially provide tax advantages,
• Investment knowledge. Financial literacy is a key part of financial wellness and includes investing. Knowing what investing is about, and how to invest, can be life changing. There are tools that can help, including Yieldstreet’s investment calculator.
• Long-term goals. It’s essential to have a roadmap for life goals, even if they require adjusting along the way. Preparation can also help reduce stress and anxiety about one’s financial future.

Setting Achievable Financial Wellness Goals

It is important to establish financial goals, but make sure they are realistic and achievable. Otherwise, they could lead to self-defeat and discouragement.  First, though, there are questions to be answered, such as how much has been saved for retirement to date? If that amount is insufficient, is there a plan to save more? Are employer-sponsored retirement plans being taken advantage of? Is there an individual retirement account set up?

While retirement is being singled out here, it illustrates how setting and working toward short- and long-term financial objectives are a key part of gaining all-around financial wellness. 

Real Life Success Stories

A person’s car broke down, a vehicle that is not only used for transportation to and from work, but it is often needed during work for employer errands, etc. If the car wasn’t repaired right away, the employee likely would have lost their job. Instead, the individual acknowledged early on the possibility that their aging vehicle may require sudden repairs. So, instead of buying an expensive fancy coffee each month, he set aside that money in preparation. Then when he did need work done, he could pay for it – and without going into debt. 

Another individual had a suddenly ill relative who lived a flight away. Had the person not been diligently saving, the lack of money likely would have stood in the way of them being able to travel.  Because they had an emergency fund, they were able to attend to their loved one.  

The Perks of Achieving Financial Wellness 

Those who achieve financial wellness also gain the peace of mind that accompanies the assurance that they can pay their bills, handle emergencies, and manage their monthly expenses. They also are able to put money away for long-term goals and feel confident about their future. If financially healthy people experience a financial setback, they bounce back because they have the appropriate resources and plans in place. 

These are perks that are, as is said, “priceless.”

How to Improve Your Financial Wellness

There are practical tips and methods for improving one’s financial wellness, including:

1. Creating a budget and sticking to it. A budget plan lets the person know how to spend their money each month and ensures the funds will be there to meet obligations. It also helps to save for goals or emergencies.
2. Building an emergency fund. Set aside money – 1,000 to start – to cover life’s inevitable surprises without going into debt. Build up to saving six months to a year of living expenses.
3. Paying off high-interest debt. Unchecked high-interest debt can swiftly grow and divert funds from other milestones such as homeownership, investing, or family planning.
4. Investing in retirement accounts. Retirement accounts can provide savings by enabling people to defer paying taxes on contributed funds until the money is withdrawn.
5. Improving one’s credit score. It is challenging to get ahead in life without good credit. For one thing, banks and other lenders will be more willing to accept applications for loans, credit cards, or mortgages.
6. Diversifying investments. Increasingly, investors weary of the inherent volatility of the stock market are turning to alternatives – asset classes such as art, real estate, and transportation – because of their low correlation to public markets and to diversify their holdings. Spreading investments across varying asset types can help mitigate overall risk. In fact, diversification is key to long-term successful investing.

Alternative investments can be a good way to help accomplish this.

Alternative Investments and Portfolio Diversification

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

Summary

Investing and investment knowledge are key components of financial wellness, which is key to long-term quality of life. Such wellness ultimately comes down to feeling secure about one’s financial future. There are a number of tips and methods that can help with the journey.