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COVID’s Impact on Your Financial Well-Being

  August 24, 2021  |    #Live Fabulously

How financial well-being has changed

People’s financial well-being has changed since the start of the pandemic. Here’s how and how to improve your financial well-being. Meanwhile, start improving your financial well-being by improving your credit score here.

What’s financial well-being?

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 them to enjoy life.”

Capital One says financial well-being is “the ability to spend wisely, build savings for the short- and long-term, manage credit and debt, and handle things life may throw at you while planning for the future.”

We say that financial well-being is “the capacity to meet current and future needs and enjoy your quality of life today with cash.”

At its simplest, financial well-being is your short-term and long-term financial security.

The state of your financial well-being is important because your financial well-being affects your stress levels, more specifically, your financial stress. The American Psychology Association (APA) has determined that financial stress is a leading cause of unhealthy behaviors, the same as smoking, unhealthy eating, and alcohol and drug abuse.

The effects of financial stress, like other unhealthy behaviors, can cause a series of adverse consequences including but not limited to:

• Quality of sleep
• Physical health
• Emotional health
• Relationships
• Work performance
• Family life

Capital One’s Financial Well-Being Survey

To gauge people’s financial condition both before and since the pandemic, Capital One conducted a financial well-being survey.

The survey sampled 2,000 Americans and found that 56% of respondents believe their concept of financial well-being has changed since the pandemic. Slightly more (58%) respondents have acknowledged that how they think about and value money, including how they think about spending, saving, borrowing and planning, is different from their pre-pandemic perceptions.

What that consideration in mind, 48% of respondents say the pandemic has changed their perception of what is a necessary rainy-day fund and have increased the amount needed accordingly, increasing from 5 months pre-pandemic to 6 months now.

What’s striking is that 1 in 3 women (33%) said they made a weekly impulse purchase and nearly half of women (48%) regretted their purchase in under an hour.

In less than one hour!

For men, this was 40%.

We found some unfortunate data around women’s financial state. For instance, almost half of all women (47%) agree they need a complete financial overhaul. This is compared to the 35% of men who said the same thing. Men are also nearly 20% more likely to classify their finances as healthy (58% vs 39% for women).

Some of the results for men could be due to an overinflated sense of self-confidence. Men often feel pressured to just know how money works and to be doing well with their money. Men are also bigger risk-takers and may not feel the same level of anxiety as the same decisions women make.

Hear more about Capital One’s Financial Well-Being Survey:

How to improve your financial well-being

Whether as a consequence of the pandemic or otherwise, how do you improve your financial well-being?

1. Know your goals

We’ll start where we usually start and that is to know your goals. What are your hopes and dreams? What’s your direction and purpose?

You must first pick your destination and then reverse engineer from there the life you want for yourself.

Too often, we spend our money because of emotional reasons, to simply feel better, to been seen as equal or more important than our peers, out of anger, and these reasons may be why so many people regret impulse purchases within the first hour.

When you know your goals, you can use them as a guide doing moments of temptation. “Yes, I want a margarita now, but I’d much rather have a margarita on the beaches of Mexico.”

2. Know your why

It’s not enough to know your goals but to know why these are your goals. What’s the reason behind the reason?

When we peel back the onion of our goals, we gain more clarity around our goals and that clarity acts as a talisman to help us stick to our goals. This helps in both good and challenging times.

3. Improve household income

Simply put, you’ll need enough income to meet your basic, day-to-day needs and have money left over to save for future goals. If your household income doesn’t support that, you have options.

Fortunately, today, there are more open positions than candidates to fill them. So, a job or career change could increase your income if you negotiate a better salary. Because of the dearth of qualified candidates for each job, the negotiating powers are in your favor. Not only does this give you leverage to negotiate a higher wage, but you can negotiate other perks, such as working from home.

Another option is to start your own part-time business to generate extra cash. The barrier to entry of starting your own business has never been lower. With the internet and the gig economy, it’s possible to turn nearly any hobby into a money-generating business.

There are two sides to a balance sheet, though, and the income side gets most of the attention.

56% of survey respondents did say that their concept of financial wellbeing has changed since the start of the pandemic. - Mili Mittal of Capital OneClick To Tweet

4. Manage your money wisely

The truth is that most Americans don’t have an income problem, they have a spending problem. The good news is that most of us only have one to three outliers in our spending that, if reigned in, can drastically improve our financial well-being.

Simply put, spend less than you make and save and invest the difference. Find the right budgeting tool for you, whether it’s a simple Excel spreadsheet or a fancy app on your phone. Analyze your spending and adjust as needed. Cut superfluous expenses – do you really need seven streaming services?

Pay off credit card debt. Improving your credit score.

Contribute and invest in your company-sponsored retirement plan. Get adequate life insurance through your work and add on any necessary, supplemental insurance.

Pick one way a week to improve your financial well-being and you’ll be surprised how drastically it improves in a few months and especially a year.

5. Increase your savings

The only way to achieve your long-term financial goals, especially, is through saving and investing as much of your money as possible. Start with building an emergency savings account of $500.

Then, look for ways here and there where you can save more of your money to keep for yourself. Examples are, getting super meticulous with your grocery shopping and dining out expenses. Increasing your company-sponsored retirement plan contributions by 1% each year or maybe by as much as your annual pay increase. Taking your car in for regular maintenance.

The bigger this stash, the more your financial anxiety will dissipate.

Overall, Capital One recommends people “develop financial goals around four key interrelated areas – spending, saving, borrowing and planning – to help achieve financial peace of mind, confidence and a state of well-being.”

And we agree.

Get started with improving your financial well-being today, by signing up for CreditWise to start improving your credit score.

Resources for financial well-being:

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