Checkbook checkup: Three areas to examine financial freedom

Financial health is a term used to describe the economic well-being of an individual. Both the day-to-day management and long-term stability of your personal finances inform this definition of our financial wellness.

Good financial health means a secure income, being able to make payments reliably, and the opportunity to save money. Like physical and mental health, it’s essential to look after our financial health with regular checkups and ongoing maintenance work. Unfortunately, 72% of Americans continue to say their finances are their most stressful anxiety. This is where banks and businesses can step in.

While there is no shortcut to financial well-being, a more holistic approach from the business sector can create a deeper understanding of user needs. As a result, services are developed around the real problems at hand thanks to a more empathetic relationship.

So how can you build a complete picture? Let’s start with the three pillars of financial health:

1. Have a backup plan with an emergency fund

One indicator of financial health is a person’s ability to withstand economic shocks. The need to weather economic storms can affect both personal finances as well as national and global economies.

Personal economic shocks could include unforeseen events such as house repairs, job losses, or physical accidents that cause significant costs. Likewise, macroeconomic instances like the coronavirus pandemic and the Ukrainian war are just some recent examples that are putting a squeeze on people’s personal budgets in the form of a cost of living crisis and a potential recession.

Without an emergency fund, people’s ability to survive these unexpected shocks is reduced, and their overall well-being is increasingly affected. Banks and employees should be aware of personal circumstances so they can help people prior to debt by avoiding payday loan sharks and buy now, pay later pitfalls.

2. Don’t just save, have fun, too

While saving for a rainy day is always wise, good financial health means more than just surviving. Making and meeting savings goals is a crucial indicator of economic health as it demonstrates the stability of an individual’s finances.

Savings are the key to financial freedom. Being able to make a purchase without worrying about money is a life-changing notion for many who could not imagine such a lifestyle. Many of us only feel financially healthy when we know we have money in the bank to buy an item we like, for example.

Emergencies are often life-defining but so are weddings or buying a house. Products such as luxury goods and holidays are also linked to our memories and can be equally important in people's lives. Good financial health comes when individuals can build a pot for their wants, as well as their needs.

Having this kind of fun, and the money available also makes these purchases and events like vacation much more stress-free when you don't feel that you are always catching up.

3. Stability has its perks

A steady income is the foundation for any measure of financial health. A reliable income stream means stability as individuals can plan and live within their means.

For the vast majority of people, including freelance and gig workers, an average monthly income helps people to budget better, so they avoid debt and invest in their future. Even those who may spend on credit cards require a stable income to pay that card off each month. Unlike traditional credit scores, our more holistic BOND score considers many influencing factors, such as how reliable you are at making payments.

This is where fintech and embedded finance possibilities for banks and employers are creating new opportunities to improve consumer financial health. Banks can go beyond what they offered traditionally and use employers to develop stronger relationships with their customers by better understanding their consumer needs. Employers help facilitate this approach to Banking as a Service (BaaS) through beneficial partnerships tailored to their employees' needs.

Bonus tips!

In addition to the three main pillars of financial health, some additional factors also serve as valuable indicators for financial wellbeing:

 • Passive income: They say the biggest flex is making money while you sleep, after all.

 • Appreciating assets: Whether you’ve bought a house or invested in stocks, appreciating assets help to protect against inflation.

 • A retirement fund: Most of us don’t plan to work forever, so a retirement fund is crucial to making retirement a possibility one day.

 • Debt-free: Living debt-free is a goal for many people but not always a reality without financial help and guidance.

A bigger picture of financial health can be built when banks and businesses take a holistic approach to their customers. From this deeper understanding banks and businesses are able to develop stronger relationships with their customer base that better serve the needs of those consumers. As a result, more people can live financially healthy lifestyles where they feel confident and happy with their finances.

Learn more about how we’re improving financial wellness on the BOND.AI blog.

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