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Financial wellness is a state of financial wellness that allows you to manage your bills and expenses, pay off debt, deal with unexpected financial emergencies, and plan for long-term financial goals, such as building funds for college and saving for retirement.
The United States Consumer Financial Protection Bureau defines financial well-being, also known as financial well-being, as “a sense of having financial security and financial agency, both now and in the future.”
Why is Financial Wellness Important?
When it comes to money, every currency counts. Achieving financial well-being gives a sense of security and financial freedom.
This means you may not have to worry about a sudden emergency, job loss, or career change that could affect your finances in the short term. It could mean less stress, more time with family and loved ones, and more meaning and purpose in your career.
But it’s important to realize that not everybody starts at the same “starting line” in this marathon of financial wellness. The gender pay gap remains widespread women earn less than men. It is estimated that women would need an additional 42 days of work to earn what men did in 2020.
But there is also a gender gap in financial education. Data shows that men understand money better than women. This financial literacy gap can be attributed to inequality in the way we teach and empower women to succeed in today’s world. Getting financial education is essential to understanding what it means to be financially good.
The persistent racial wealth gap endures to make little or no progress. Research shows that closing the racial prosperity gap is key to speaking large-scale inequality.
4 Principles of Financial Wellness
Making a budget and sticking to it lays the foundation for building your financial well-being. It provides a roadmap for managing daily finances, preparing for financial emergencies, and planning for your future.
Managing long-term debt and eliminating consumer debt can reduce barriers to saving, investing, and long-term financial planning. Knowing how to manage credit carefully can also improve your credit score and give you access to better rates on mortgages, auto loans, and other major purchases.
Savings and investments
Long-term saving and investing can provide financial security and peace of mind for retirement planning. Short-term savings can give you cash to cover home repairs, vacations, or other planned expenses without adding to your debt.
Protection and Insurance
Insurance or emergency funds can protect you financially from unexpected emergencies. Insurance may cover damage due to fire, flood, or health emergencies. An emergency fund, on the other hand, covers other crises. Both can help keep you from dipping into long-term savings or going into debt.
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