If you are concerned about your financial state of being, learn how to manage your money.
A report authored by the Consumer Financial Protection Bureau (CFPB) defines financial well-being as “a state of being 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 enjoyment of life.” Given the opportunity, what behaviors would a person need to maintain to achieve this “state of being?” Four specific behaviors are described that one needs to exhibit to achieve financial well-being.
First, a person needs to manage their money. Simply put, you need to manage what comes in and what goes out and “live within your means.” This may mean being frugal, having discipline and being able to distinguish between wants and needs. In addition, this person should be intentional in their lifestyle and think about how today’s decisions affect tomorrow’s outcomes. This person is content with living within their means and uses credit wisely or not at all because they have planned and have saved for large purchases. In fact, this person avoids debt or manages it carefully when necessary. However, it is not just what goes out. A person who manages money well will make sure that they have enough income to meet all their needs. This may mean doing whatever it takes to earn an income and avoiding losing income at all costs.
The second behavior that one needs to exhibit to achieve financial well-being is to do their research and seek knowledge about their financial decisions. They may talk to a family member or spouse when making a big financial decision. They may seek the wisdom of a friend or co-worker. They may also seek to learn from the mistakes of others around them. If it is a technical decision, they may consult experts or attend a workshop or class. People who educate themselves or are educated in a vast array of areas may know how to do research in the area that they need answers.
The third behavior that supports financial well-being is planning and goal setting. People who exhibit this type of behavior may make a spending plan to determine the short-term use of their money. Many individuals often have short-term and long-term financial goals that they are trying to achieve. These goals can be part of a formal financial plan, or their financial plan may be to secure the education necessary to find a career that generates the type of income necessary to achieve their goals. The bottom line is having a plan and setting goals is essential.
The fourth behavior that supports financial well-being is simply “follow-through.” All the managing, knowledge and planning will not result in financial well-being unless the person follows-through with these behaviors. The CFPB’s report points out that people who follow-through are “future oriented” as opposed to impulsive or short-term thinkers. This type of person saves and invests for the future in order to fund their plans. They are intentional and often seek an education to support their plans and dreams.
People who desire financial well-being exhibit behaviors that support achieving this goal. If you are concerned about your financial state of being, learn how to manage your money. Seek knowledge from those close to you and when necessary, from professionals. Plan, set some goals and put those plans into action. Michigan State University Extension offers a variety of money management programs in-person and online throughout the state of Michigan. For more information on making a spending plan, saving money and making money decisions, check out ourmoney management website. Find more information about the basics of financial education and to learn about educational events in your area at MIMoneyHealth.org.
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FAQs
Simply put, you need to manage what comes in and what goes out and “live within your means.” This may mean being frugal, having discipline and being able to distinguish between wants and needs.
What are the good financial behaviors? ›
Adopting positive financial behaviors, such as budgeting, saving, debt management, investment, and avoiding impulse spending, can help individuals achieve financial stability and security in the long run.
What makes up financial well-being? ›
Financial well-being describes 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.
Does financial behavior influence financial well-being? ›
According to the literature, subjective financial well-being is influenced by financial behaviour, which is a significant predictor of financial well-being.
What contributes to financial wellbeing? ›
Financial wellbeing is about checking your spending habits, budgeting in a way you can stick to and paying off debts in bite-sized chunks (or rolling them into one).
What are financial behaviors? ›
It can be defined as any human behavior that is relevant to money management. Common financial behaviors include cash, credit and saving behavior.
What is finance behavior? ›
Financial Behavior is. the level of an individual or household's ability to manage. financial resources including the planning to earn money, managing and controlling finances, and practices related to. cash and credit management [4].
What are the three levels of financial well-being? ›
(2020, p. 1596) found that FWB has three dimensions: meeting expenses and having some money left over, being in control, and feeling financially secure.
How can you create a positive financial well-being? ›
Tips for financial wellness
- Track your spending for a three-month period. ...
- Manage your debt. ...
- Understand how lending works. ...
- Create a budget — and set goals. ...
- Prepare when buying a home. ...
- Make automated savings deposits a habit. ...
- Create an emergency fund. ...
- Invest regularly.
Financial wellness is a state of financial well-being in which you can comfortably manage your bills and expenses, pay your debts, weather unexpected financial emergencies and plan for long-term financial goals such as building college funds and saving for retirement.
If you are interested in improving your financial behaviour, there are a few things you can do:
- Learn Personal finance. The more you know about personal finance, the better equipped you will be to make sound financial decisions. ...
- Set Financial Goals. ...
- Automate Savings and Investments. ...
- Get Professional help.
When you know that you have enough money to cover your expenses, it can free up your mental energy to focus on other things, such as your relationships, your health, and your career. Financial security can give you a sense of peace of mind and allow you to enjoy life more fully.
What is the behavioral financial effect? ›
Behavioral finance is the study of how psychological influences, such as emotions like fear and greed, as well as conscious and subconscious bias, impact investors' behaviors and decisions.
What does "financially healthy" mean? ›
Individuals who are Financially Healthy are able to manage their day-to-day expenses, absorb financial shocks, and progress toward meeting their long-term financial goals.
What are the 5 steps to financial wellbeing? ›
You may encounter bumps along the way, but the long-term results should be worth your effort.
- Step 1: Gaining financial literacy. It's valuable to become familiar with basic financial concepts. ...
- Step 2: Budgeting. ...
- Step 3: Managing debt. ...
- Step 4: Saving. ...
- Step 5: Investing.
It enables you to pay bills on time, build savings, and avoid high-interest debt, setting the stage for a secure and prosperous financial future. Ultimately, achieving financial stability empowers you to work towards financial freedom, where you no longer rely on income solely to cover living expenses.
What are the 4 categories that drive financial behaviors? ›
Research from SAM's LifeValues Quiz identifies four categories of values that drive financial behaviors: inner values, social values, physical values and financial values.
What are the three main characteristics of a good financial model? ›
A good best practice financial model needs to have the following characteristics, which will make it easier to read and to be reviewed. It needs to be clear and concise, simple to use, and robust and flexible. A clear and concise model is one that is well presented, only includes relevant inputs.
What are two healthy positive financial behaviors that you plan to demonstrate? ›
10 Real Examples of Good Spending Habits You Should Have
- Follow a Budget. Effective money management starts with a budget. ...
- Set Financial Goals. ...
- Pay Yourself First. ...
- Pay Bills on Time. ...
- Find and Stick to a Debt Repayment Plan. ...
- Check Your Bank Accounts Each Day. ...
- Invest in Insurance. ...
- Save for Retirement.
RBI has been conducting FLW every year since 2016 to propagate financial education messages on a particular theme among members of public across the country. The theme selected for current year FLW is 'Good Financial Behaviour – Your Saviour' which will be observed between February 13 and 17, 2023.
