Yes, You *Can* Achieve Financial Wellness, Despite Dealing With Money-Related Trauma
You may know what it means to be mentally well—being able to manage your emotions and stress in a way that is positive and in your best interest. And you may know what it means to be physically well—recognizing what your body needs and taking care of it to achieve optimal health and longevity. But what exactly does it mean to be financially well? Compared to all the different forms of wellness, financial wellness is arguably the least discussed and most misunderstood.
Financial wellness is the ability to understand your emotions around money, develop healthy emotions as well as literacy around money, and successfully manage your money, says Thomas Faupl, LMFT, a financial therapist based in San Francisco, California.
Financial wellness also encompasses the tools and strategies that help you feel secure and in control of your personal funds, adds Alexa von Tobel, CFP, founder of Inspired Capital and author of Financially Forward: How to Use Today’s Digital Tools to Earn More, Save Better, and Spend Smarter. Think: Creating and sticking to a budget, having a savings plan, and setting financial goals (more on these strategies later).
Meet the Experts:
Thomas Faupl, LMFT, is a financial therapist based in San Francisco, California.
Alexa von Tobel, CFP, is the founder of Inspired Capital and author of Financially Forward: How to Use Today’s Digital Tools to Earn More, Save Better, and Spend Smarter.
Mia Lee, is a certified public accountant and chief financial officer of Petit Mort Magazine.
Katia Chesnok, M. Fin., is a financial educator and personal finance expert.
If you’re wondering whether or not you’re “financially well” (hint: it looks different for everyone), how you can improve your own financial wellness, and what to do if you’re dealing with financial trauma, ahead experts break down everything you need to know to feel safe and secure in your finances.
What is financial wellness, anyway?
The U.S. Consumer Financial Protection Bureau defines financial wellness as “a condition wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.” While this is a solid gold standard, the reality is that there are various societal and predisposed circumstances that don’t allow certain groups, such as people of color, queer communities, and disabled folks, from reaching this idealized version of financial wellbeing.
With this in mind, Mia Lee, a certified public accountant and chief financial officer of Petit Mort Magazine, offers a revised definition. “A more inclusive and realistic definition of financial wellness is a state of being in which you have made the optimal choices toward your current and future financial security with the resources and constraints you’re dealt with,” she says. In other words, financial wellness looks different for each person.
For someone who’s able-bodied, mostly supporting themselves, and a high earner, financial wellness might look like saving up for a down payment on a new home in the next five years or investing in a once-in-a-lifetime travel experience. For someone who’s disabled, supporting family members, and earning a lower wage, financial wellness might simply be securing three months of living expenses and working towards eliminating credit card debt, says Lee.
In this case, your financial wellbeing should be defined in achievable steps and goals, accounting for your circumstances. So don’t be too concerned if your version of financial wellness looks different from your best friend’s, coworker’s, or even sibling’s. Everyone is one their own individual journey, and that’s okay.
Why is financial wellness so important?
Simply put, you need financial safety in order to feel physically, mentally, and emotionally safe and secure. Think about it: You need money for almost everything—to cover housing, food, travel, and clothing costs, just to name a few examples. Without financial security, your housing and food stability are also threatened, which can have adverse effects on other aspects of your wellbeing. “Until you’ve taken care of your financial health to the point where you are minimally surviving and ideally thriving, you really can’t work on anything else,” Lee notes. “And so the benefit of financial wellness is simply that it removes financial stress.”
Being able to pay bills and buy food are basic survival needs for pretty much everyone, so if you’re struggling with that, it’s hard to have a good quality of life, says Faupl. While everyone deals with varying degrees of stress, having a high level of financial worry is not good for one’s overall wellbeing, he adds. In fact, high financial stress can lead to depression, poor physical health, and decreased life satisfaction, according to a 2020 study published in BioMed Central Geriatrics.
Another benefit of financial wellness is that it allows you to have financial freedom, a.k.a freedom of choice. If you’re financially well, you don’t have to stay at a job that isn’t fulfilling or that has a toxic environment, for example, and you don’t have to stay in a situation or relationship that’s not healthy for you, says financial educator and personal finance expert, Katia Chesnok, M. Fin. Financial wellness allows you the liberty to choose what option is best for you, and the ability to strive for a better lifestyle, she adds.
In other words, you can pursue a more meaningful, purposeful, and enjoyable life “as you need money as a foundation to do those things,” says Faupl.
Making a meaningful career or job change is just one way you can improve your financial wellness. Here are seven steps on how to make that shift:
How can I improve my financial wellness?
If you’re looking to improve your financial wellness (which, TBH, should be everyone’s goal), here are some tried-and-true steps on how to do so, according to the experts:
1. Take an honest look at your finances.
“The first step, which I think people might hate me for saying, is to take an honest stock of your fixed and variable expenses,” says Lee.
Lee explains that fixed expenses are costs that don’t drastically change or increase over time (i.e. rent or mortgage costs, car payments, and health insurance). While variable expenses are the exact opposite. These costs do vary and fluctuate over time, and may include things such as clothing, travel, and dining out. To compare your fixed and variable expenses, it might be helpful to separate them into two columns to see how much you’re paying for necessities versus luxuries and entertainment.
Taking an honest look at your expenses might be scary, especially if you grew up with financial troubles, as you might not necessarily want to know the answer. Nevertheless, this is a vital step towards achieving financial wellness. Simply writing things down can help you become more comfortable with your finances. “I’ve found that for some friends who I’ve helped through financial situations, simply writing down their expenses—even if they’re spending more money than they make—simply knowing that number can take a bit of weight off their shoulders,” says Lee.
Once you have your expenses sorted, take a look at your income streams (i.e. wages and gifts).
Then, calculate: How much are you spending compared to how much you’re making? Do you have a surplus at the end of every month? If not, is there a variable expense you can sacrifice to put more money towards savings? These are just a few questions to ask yourself.
2. Budget.
After taking an honest stock of your expenses and income, it’s time to start budgeting. Von Tobel recommends the 50/30/20 budget framework. The general idea is that your take-home pay goes into three main buckets: 50% of your income should go towards needs or essential payments, such as rent, utilities, food costs and transportation, 30% should go towards your wants such as clothing and experiences, while 20% should be allocated towards savings, paying off debts, and building an emergency fund. “This is a framework that ensures you’re maximizing the money that comes in each month,” she says.
Ahem, your hard-earned cash isn’t the only thing you’ll want to budget. Lee suggests you budget your time as well. “Budget your time the way you budget your money,” she says. “If you have allocated 20 hours for volunteer work this month, after those 20 hours, the next person who asks you to offer your time, the answer is no. This will free up more time for you to do paid work, if you so choose.”
3. Set up a financial calendar.
Treat your finances the same way you treat your social life, says von Tobel. In other words, put all your key financial dates into your calendar.
For example, every January, von Tobel does a financial refresh with her husband to prepare for tax filings. Then in September, they plan for bigger purchases such as travel around the holidays. And every quarter, she makes a note to herself to check her credit score. She lists all of these “events” on her personal calendar.
So make a list of all of your financial responsibilities and plans—paying off your monthly credit card bill, preparing for taxes, planning big trips, etc—and then make each “event” recur on a schedule that makes sense to you, says von Tobel.
If you’re financially able to do so, you might also think about automating your payments, says von Tobel. This means setting and then forgetting things such as savings account deposits and student loan bills. “Money that is out of sight, is out of mind, which means you’re less likely to touch money that’s occurring in your savings account,” she adds.
4. Save and invest.
If you’re in a position where you’re doing okay financially, and have some money left over, you can improve your financial wellness even more by saving, and possibly investing (but mostly save).
There are plenty of savings options available, but for the purposes of achieving financial wellness, the experts have outlined three main options:
High Yield Savings Account: A high yield savings account is a type of savings account that can earn you a higher interest rate than a regular savings account, which may earn you the national average rate of about 0.17% APY, or annual percentage yield, according to Investopedia. You can open an account either through a bank, credit union, or neobank. A plus of this type of savings account is that by law, you can withdraw cash out of your account up to six times per month without incurring any fees, according to CNBC. The only downside of a high yield savings account is that the interest rates, which usually fall somewhere between 2% to 4%, rarely outpace inflation, says Lee. In other words, you might be “losing” money over time.
Roth IRA: “I tell everyone to get a Roth IRA,” says Lee. Roth IRAs are essentially retirement accounts that allow for tax-free growth and withdrawals on your investments. You take after-tax dollars, a.k.a money you’ve already paid taxes on, put that money into your account, and allow that money to grow through compound interest rates until you can finally withdraw those earnings when you’re 59 and a half. The benefit of a Roth IRA is that your earnings aren’t taxed after you withdraw them, which can be a buffer against inflation. Also, you can take out the principal, a.k.a the money you initially deposited, at any time and up to $10,000 to buy your first home and other qualified withdrawals, according to NerdWallet. “A Roth IRA can serve as a short-term savings account and you get a much better return than high yield savings,” says Lee.
401k: Usually offered by your employer, a 401k is a retirement savings plan. It can lower your taxable income, as the money that you’re saving is pre-taxed, and then that pre-taxed money grows over time, says Faupl. 401ks are essentially the opposite of a Roth IRA in that for a Roth, you put in post-tax money and there are no taxes on those earnings once you withdraw them; with 401ks, however, the assumption is that you’ll be able to pay taxes on those earnings, explains Lee. Since many employers often match their employees’ 401k contributions, Lee suggests contributing to your 401k up to your employer’s match and then no more. Beyond that, you’ll want to be contributing to a Roth IRA and other investment opportunities.
5. Educate yourself.
A large part of maintaining your financial wellness is committing yourself to developing financial literacy over time, says Faupl. “That’s the big picture thing.” Even those who have dedicated their entire lives to understanding finances can still learn something new. So while you might be a pro at managing your money, you may still benefit from further education. Developing your financial literacy might look like signing up for a personal finance course and/or reading finance-related websites, books, and articles (like this one!).
What if I’m dealing with financial trauma?
It’s no secret that financial wellness may be harder to achieve for those who have been socially or economically disadvantaged—for example, if they grew up in poverty or lack generational wealth due to racism and racialized practices, such as redlining.
“BIPOC people living in white privileged societies have been [and, in most cases, still are] at a disadvantage,” says Faupl. “And as a result, there have been some real consequences for folks around money.”
Nevertheless, despite your financial background and upbringing, there are ways to achieve financial wellness. However, similar to many other aspects of life for underprivileged folks, it might just require quite a bit more work.
For starters, take advantage of free educational resources and apps that can help you build a better relationship with money and also feel more confident about how you manage your money, says von Tobel. Mint is a great app for budgeting and keeping track of bills, while NerdWallet is another budgeting tool whose website offers dozens of informative articles on personal finance. “Educate yourself and learn as much as you can about personal finance, which sadly isn’t something they necessarily teach in school,” adds Chesnok.
Remember: You don’t have to go on this financial wellness journey on your own. If you’re in need of practical financial assistance, there’s a number of credited consumer credit counseling services that offer free counseling around developing a spending and savings plan, navigating student loan repayments, and, in general, asking money-related questions, says Faupl. If you have some emotional trauma around poverty and financial instability, you might also consider working with a financial therapist to feel more empowered around money management, he adds.
Discovering your “why” might also help you work through some of those generational traumas, says Chesnok. Ask yourself: Why do I want to buy a house? Why do I wish to double my income? Does it have something to do with your parents and how you were raised, or are you doing this for yourself and so that you feel financially secure?
Lastly, start being selfish. “A common thing I observe that stops people who don’t have generational wealth from building that wealth for themselves is that once they have a little bit of money, they feel obligated to take care of everybody else,” says Lee. While there will always be someone more needy than you in the world, Lee emphasizes that doesn’t mean that you don’t matter. “Once you feel financially secure, then you can set yourself a budget to help other people,” she adds.
At the end of the day, money is simply a tool we use to meet our goals and buy the things that not only guarantee our survival, but also make us happy. Wherever you are in your financial wellness journey, hopefully these expert-approved tools will help you feel more confident in your finances so that you can live the meaningful, fulfilling life you deserve.
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