Personal finances don’t have to be a grim spot in an otherwise bright life, regardless of one’s financial status. As Vanguard’s guide to financial wellness makes plain, following a few easy guidelines can help put investors on the path toward paying their bills, lowering their debt, and coping with an unexpected financial emergency—all while maintaining a firm grip on their retirement preparation.

The guide defines financial wellness as:

“The objective financial situation of a person, household, or family. It is the ability to meet current and near-term financial obligations and to be on track to meet your future goals.”

Of course, no one achieves financial wellness and is suddenly set for life as a result. Financial wellness is an ongoing effort that must be nurtured and maintained over one’s lifetime. To do so, our guide suggests small steps in three key areas: taking control of finances, preparing for the unexpected, and making progress toward goals. 

Taking control of one’s finances is the first step toward realizing financial wellness. This is the step in which savers identify where their money’s coming from and where it’s going. In other words, create a budget. Not everyone likes to do this, but a budget is a powerful tool to help get finances in order. There’s no one-size-fits-all solution to budgeting, so the guide encourages savers to design one that works for them. And it offers four different approaches to help them get started.

From here, they can focus on effective debt payment strategies, spending strategies, and growing their retirement savings. The guide offers clear action steps.

The next step toward financial wellness deals with uncertainty—because life happens. Cars break down. Pipes burst in winter. People get hurt.

This section of the guide details how investors can mitigate life’s financial risks. One key suggestion is to build an emergency fund to stave off that sudden plumbing crisis or other spending shock. Another is to set aside savings in case of a loss of income.

The guide also helps savers navigate the world of insurance (and it’s a big world) for more catastrophic financial setbacks. It further delves into how to be legally prepared for setbacks with appropriate documentation, such as a will, power of attorney, or beneficiary designation.

While uncertainty can be overwhelming, the guide lays out actions that can be taken now to boost preparedness.

The third step on the path to financial wellness includes longer-term goals like retirement, education, and health care.

It’s important to determine how and where savers will approach these goals. For instance, tax-advantaged accounts, such as a defined contribution retirement plan and health savings account, could be good for long-term goals like retirement and future health care expenses (and current ones too). They allow investors to accumulate money now and save on tax bills.

For more flexibility and easier access to money when it’s needed, taxable accounts can be suitable for shorter-term goals like vacations or a down payment on a car or house.

This section of the guide also offers tips on prioritizing debt, provides scenarios on when it may be advantageous to carry debt, and suggests ways to be generous with money through charitable giving.

There are important benefits to achieving financial wellness. It helps investors take advantage of new saving and spending opportunities, helps protect them when they’re blindsided by the unexpected, and can help build greater wealth.

But overall, financial wellness can help alleviate stress. Vanguard’s guide to financial wellness can help get savers on their way to a brighter financial future. 

• Timely—and timeless—insights on financial wellness (article, issued January 2024)
• Financial literacy and financial wellness: Like two peas in a pod (article, issued April 2023)
• Three small yet essential steps for financial wellness (article, issued January 2023)