What is Financial Well-Being?
“If you make a good income each year and spend it all, you are not getting wealthier. You are just living high.”
~ Thomas J. Stanley and William D. Danko, The Millionaire Next Door
Is wealth the same as financial security? You can compare yourself to others by measuring net worth or the accumulation of money or possessions, but financial security — that feeling of having enough to cover your financial needs — is unique to each person.
In 2015, the Consumer Financial Protection Bureau (CFPB) published a report focusing on financial well-being defined as “a state of being wherein you:
- Have control over day-to-day, month-to-month finances;
- Have the capacity to absorb a financial shock;
- Are on track to meet your financial goals; and
- Have the financial freedom to make the choices that allow you to enjoy life.”
Consumer Financial Protection Bureau (CFPB), Financial well-being: The goal of financial education.
Focusing on financial well-being lets you assert your own path to financial security. Of course, you may achieve wealth through the process, but the spotlight remains on you, your financial needs, and the unique actions you take.
What does financial security mean to you? Does it include aspects of the CFPB definition? Take a moment and write down a working definition for yourself. What would your life look like or feel like if you were financially well-off? How will you know when you reach your definition of financial security?
Complete this sentence: I will know I am financially secure when _________________.
Wealth, Income and Possessions
It is a common misconception that your income level and material possessions define your wealth. However, a person with a large income might live paycheck to paycheck with an expensive lifestyle that limits his or her ability to accumulate wealth.
Wealth isn’t defined by how much money you earn – it’s about how you grow and save your money to meet your changing life circumstances.