Financial well-being means feeling in control of your money while building confidence for tomorrow. It’s when you can comfortably meet your everyday financial obligations and are prepared to weather surprises. It’s also the point where you’re making steady progress toward your future goals.
Financial well-being doesn’t look the same for everyone. Your income and goals are unique as you are. But the goal is universal: gaining the stability and freedom to build the life you want.
Read on to learn what financial well-being is and how to keep improving it through every stage of life.
Key Points
- Financial well-being is the ultimate goal of financial education. It’s when you feel totally in control of your current and future financial security.
- More than two-thirds of Americans (64%) say money is their biggest source of stress, according to the American Psychological Association (APA).
- Only 49% of adults are considered financially literate, according to the Teachers Insurance and Annuity Association (TIAA) Institute.
- Your definition of financial well-being might differ slightly from someone else’s. That’s because it’s measured objectively and subjectively.
- Anyone can improve their financial well-being with smart, consistent money habits. These seemingly little habits compound over time.
- Knowing key financial metrics, like your debt-to-income (DTI) ratio and credit, can help you track your financial well-being over time.
What is Financial Well-Being, and Why Does it Matter?
Financial well-being is having a clear handle on your own finances, present and future. It’s the overarching goal of financial education.
But financial well-being can still feel out of reach for many people. According to the US Federal Reserve, 73% of US adults say they are either doing OK financially or living comfortably. That means more than 1 in 4 adults are either just getting by or finding it difficult to get by.
So, what exactly does financial well-being look like? The US Consumer Financial Protection Bureau (CFPB) defines it as having:
- Control over your finances: You can manage daily and ongoing expenses or bills. And you don’t spend your days worrying about having enough cash at the end of the month.
- Capacity to absorb financial shocks: You can handle unexpected financial challenges or life events because you have enough personal savings, insurance, and access to support.
- Movement toward financial goals: You’re on track with your short- and long-term financial goals. That might be saving up for a house or preparing for retirement.
- Freedom to make choices that let you enjoy life: Your money gives you room to splurge every now and again. Your budget doesn’t just include the essentials, but also the things you want (like family vacations). You might even be able to give back financially to your loved ones or the community.
There is undeniable importance to financial well-being, but it’s the importance of financial literacy that fuels it. After all, understanding how money works is the most important step toward taking control of it.
Both are worth striving for if you want to feel like you’re in control over your money, rather than the other way around. Financial literacy and financial well-being go hand in hand in building a financially secure future.
Key Components of Financial Well-Being
Financial stress and uncertainty are all too common. Nearly two-thirds (64%) of Americans say money is the biggest source of personal stress in their adult lives.
If you’re ready to change that narrative, start by prioritizing your financial well-being. Here’s a breakdown of its core components—from budgeting and saving for emergencies to preparing for the future.
Income, Spending, and Budgeting Habits
A huge part of financial well-being is cash flow. This is the money coming in (income) and going out (expenses) each month. Having a handle on that flow is a big step toward handling your finances.
This is where creating a budget helps. Think of your budget as a roadmap rather than a rulebook. It’s about being intentional with your money today so you can feel more secure tomorrow.
Savings, Emergency Funds, and Debt Management
True financial well-being is about your ability to weather financial shocks without losing sight of your future goals. That means having a:
- Savings fund: This is for planned goals, like saving up for a down payment, contributing to your retirement fund, or saving for a trip.
- Emergency fund: This is a safety net so you don’t have to dip into your regular savings or take on debt when unplanned expenses like medical bills do pop up.
Saving money is only part of the equation, though. Managing debt is just as vital for long-term financial security, and that doesn’t mean saying no to all forms of debt. A manageable mortgage loan can be a great tool. The key is not taking on more than you can comfortably handle.
Financial Security and Future Planning
Financial well-being is ultimately about taking back control. It’s also about getting your finances to a place where you can plan for the future without feeling like you have to micromanage every single dollar.
This might mean having a financial plan for long-term goals like retirement. What’s important is being able to follow that plan with confidence. That confidence comes from building a stable foundation through savings, investments, and insurance. The key is choosing a path that feels steady and reliable so that the only surprises in your future are the ones you’ve planned for.
Signs of Strong vs. Weak Financial Well-Being
How you define financial well-being won’t be the same as how others define it. Still, there are signs of strong vs. weak financial well-being. Getting familiar with them helps you figure out where you stand and where you still need work.
| Signs of strong financial well-being | Signs of weak financial well-being |
| You’re in control: You can cover daily and monthly expenses. | You’re stretched thin: You’re barely making ends meet each month, living paycheck to paycheck. |
| You’re calm: You experience minimal to no financial stress, even when surprise bills pop up. | You’re overwhelmed: You feel constant, undue financial stress. |
| You’re protected: You have an emergency fund or savings buffer. | You’re battling debt: You struggle with high amounts of debt, especially high-balance credit cards or expensive short-term loans. |
| You’re moving forward: You’re progressing toward financial goals. | You’re exposed: You have no savings safety net, either for emergencies or future goals. |
| You’re focused on growth: Your long-term investments stay untouched. | You’re borrowing from your future: You’re pulling from your retirement fund to cover regular expenses. |
How to Measure Financial Well-Being
Since the definition of financial well-being is largely subjective, measuring it can be tricky. That doesn’t mean it’s impossible, though.
But the CFPB’s Financial Well-Being Scale is a great starting point for measurement. It’s a self-assessment questionnaire that can help you determine your own financial well-being. It asks you to react to statements like:
- I could handle a major unexpected expense.
- I am securing my financial future.
- I can enjoy life because of the way I’m managing my money.
- I am behind with my finances.
- My finances control my life.
For every statement, you mark how well it describes you on a sliding scale. At the end, you tally up your responses to measure your financial well-being.
For a more objective way to measure your progress, consider these practical indicators. These benchmarks provide a reality check for your financial health:
- Savings rate: Take a look at how much you’re saving each month and whether your goals are on track. Fidelity suggests saving at least 15% of your gross annual income for retirement. You may need to adjust your savings rate if you have bigger goals.
- Debt-to-income ratio (DTI): Your DTI is the percentage of your monthly income that goes toward your debts. Keeping your DTI at 36% or lower helps keep breathing room in your budget and better options for future financing.
- Credit health: A good credit score (670+ FICO) shows lenders you’ve got a handle on your finances. It can also help you qualify for low-interest financing, like auto or mortgage loans. It’s a good idea to check your credit score once a year or after major financial or life events.
- Financial confidence: Do you feel ready for anything that comes your way? Do you have good reason for feeling that way? If you have the numbers to back up that feeling, you’ve done the work of achieving true financial well-being.
How to Improve Your Financial Well-Being
Improving your financial well-being starts with a few core habits that put you in the driver’s seat. Here are the 4 key steps to focus on:
- Build financial knowledge and skills.
- Create a realistic budget and financial plan.
- Reduce debt and increase savings.
- Set short- and long-term goals.
Here’s how to tackle each one.
Build Financial Knowledge and Skills
Higher levels of financial knowledge correlate with greater overall financial well-being. Yet, only 49% of US adults are considered financially literate, according to the Teachers Insurance and Annuity Association (TIAA) Institute.
You can build your financial know-how in many ways, including through online personal finance courses. These range from deep dives to casual lessons, and many don’t cost a dime.
Look for resources that cover core topics like:
- Budgeting
- Credit building
- Paying bills on time
- Saving or investing
- Taxes
- Insurance
The more you know, the better you’ll become at managing your finances. This can lead to better, more confident decision-making going forward.
Create a Realistic Budget and Financial Plan
A realistic budget is one you can follow without feeling overwhelmed. Getting started is more straightforward than you might think:
- Calculate your net income. That’s your take-home pay after taxes and other deductions.
- Track and categorize your expenses. Include fixed expenses, like rent and utilities, and variable expenses, like groceries or entertainment.
- Subtract your expenses from your income. This gives you clarity on how much money you’ve got coming in and where it’s going.
You can use a budgeting app or do it manually. It’s up to you. Just know that you’ll need to revisit your budget every now and again and adjust your plan as your life changes or new goals come into focus.
Reduce Debt and Increase Savings
Strive for a balance between paying off debt and building savings. If you have a handle on your monthly bills, start by building an emergency fund. It can help to start small with a few hundred dollars. A good rule of thumb is to have 6 months’ worth of living expenses set aside for emergencies.
As you save money, consider your debts. Prioritize paying off the high-interest balances first, which for many people is tied to credit cards or short-term loans. You might want to tackle one at a time to avoid getting overwhelmed. Once you’ve gotten rid of the high-interest debts, focus on upping your savings or investment contributions.
Set Short- and Long-Term Goals
To improve your financial well-being, you need a clear sense of direction. Figure out which goals are most important to you and jot them down. Be as specific as possible with what you want, be that saving for a down payment or becoming debt-free. Include timelines for each goal, too.
If you struggle to stick with goals on your own, find a friend or family member to keep you accountable. Since they might be working toward their own milestones, your progress can be mutually beneficial.
How to Sustain Financial Well-Being Long Term
Building the habits you need for financial well-being takes time, but anyone can do it. Consistency is the key. Stay steady with your budget and savings, and try to keep your debt down. Eventually, managing your money will feel like second nature.
And remember, not everything in life happens according to plan. There will be times when you need to cut back or shift your goals around, and that’s perfectly OK. It’s about staying adaptable. With a little patience and the right mindset, you can still get exactly where you want to be.
If you’re looking to keep that momentum going, continuing your education is the next step. Intuit for Education offers a variety of free resources for everyone from teens to adults. You can master the fundamentals of personal finance or dive into the world of business. And you can do it all at your own pace, starting today.
FAQs
What is the difference between financial well-being and financial wellness?
The simple definition of financial well-being is that you’re in charge of your financial situation. Your money choices give you security and freedom. Financial wellness is when your money starts feeling more manageable. It’s also about knowing how to manage and use the financial resources available to you.
Is financial well-being objective or subjective?
It’s a little bit of both. There are objective metrics like your savings rate or debt-to-income ratio. But defining your financial well-being is also about your confidence levels. It’s the feeling of knowing you can handle emergency expenses while progressing toward your goals. You might not always be able to measure that peace of mind with a calculator, but those subjective feelings are often just as important as the numbers on your bank statement.
Can 2 people with the same income have different levels of financial well-being?
Of course. A Goldman Sachs survey found that 36% of those earning between $50,000 and $100,000 are living paycheck to paycheck. For those whose incomes range from $300,000 to $500,000, that percentage rose to 41%. This just goes to show that income alone doesn’t automatically equate to financial stability. Lifestyle needs, cost of living, and other factors like these can all impact someone’s financial well-being.