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In theory, financial wellness is something we all want. But it also sounds a little vague and potentially complex. What exactly does it mean? And, how do you achieve it?

Simply put, financial wellness is the ability to lead a successful financial life. It’s being able to meet your basic needs and manage your money for both the short- and long-term. You can enhance your financial wellness by improving various aspects of your personal finances, including budgeting, saving, investing, managing debt, and planning for the future.

Surprisingly, achieving financial wellness isn’t just about having a substantial income; it’s about how effectively you manage and utilize your resources to build a secure financial future. That means anyone can get there, no matter where they are in their financial journey or how much money they have (or don’t). Read on for a closer look at financial wellness, including what it is, why it matters, and how to apply the basic elements of financial wellness to your own life.

What Is Financial Wellness?

Financial wellness describes a condition in which you can manage your current bills and expenses, pay your debts, weather unexpected financial emergencies, and plan for long-term financial goals like saving for retirement and a child’s education. As defined by the Consumer Financial Protection Bureau, financial well-being (another term for financial wellness) is a condition in which “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.”

Just like overall “wellness” requires adopting practices — like exercising more and eating healthier foods — to help you live a better life, financial wellness is about adopting everyday money habits — like budgeting and saving — to secure your financial stability and freedom. Also like overall wellness, financial wellness is not an end state or final destination but, rather, a way to live day to day.

The Four Elements of Financial Wellness

Financial wellness is often broken down into four key areas of your personal finances. While these elements can overlap, and one can affect another, you can achieve greater results by bringing each under control. By addressing each of these pillars of financial wellness, you can start improving your financial well-being.

1. Budgeting and Financial Planning

Creating a budget that aligns with your income, expenses, and financial goals lays the foundation for financial wellness. Budgeting enables you to allocate resources efficiently, prioritize expenses, and plan for short- and long-term financial goals.

2. Savings and Emergency Funds

Establishing a habit of creating and maintaining an emergency fund to cover unforeseen expenses allows you to build financial security. Having savings acts as a safety net during emergencies and ensures financial stability, since you won’t have to rely on high-interest credit cards or loans in the event of a financial set-back.

3. Debt Management

Effectively managing long-term debt, and eliminating high-interest consumer debt, are vital components of achieving financial well-being. This frees up funds that can then go towards savings and investing and, in turn, help reach your financial goals.

4. Investing for the Future

Investing is a key underpinning of financial wellness because it allows for wealth-building and long-term financial stability. When it comes to reaching your retirement goal, saving as much as possible and starting as early as possible can be keys to success.

7 Tips to Improving Your Financial Wellness

Maybe you don’t meet the definition of financial wellness right now. But that doesn’t mean you can’t get there. What follows are seven relatively simple steps that can help you improve your current and long-term financial health and security.

1. Set Clear Financial Goals

Building financial wellness requires coming up with systems for spending, savings and investing. But before you can focus on specific habits and strategies, it helps to have a sense of what your financial life is like now, and where you want it to be months and years down the road.

You may want to jot down some specific and realistic objectives, such as going on a vacation in three months, buying a house in two years, and being able to one day retire. Having clear short-, mid-, and long-term objectives can help you create a roadmap towards achieving them.

2. Create and Stick to a Budget

To achieve your goals, you’ll need to develop a realistic budget that considers your monthly income and expenses and also allows you to put some money towards savings and debt repayments (beyond the minimum) each month.

A budget is simply a plan for how you’ll direct funds toward all areas of your financial life, such as necessary expenses, discretionary (“fun”) purchases, debt payments, personal savings goals, and investing for retirement.

There are all different ways to budget — the best approach is the one you’ll stick with. One simple and popular budgeting framework is the 50/30/20 rule, in which you divide your monthly take-home income into three categories, spending 50% on needs, 30% on wants, and 20% on savings and extra debt payments.

Recommended: Input your monthly income to find out how much to spend on essentials, desires, and savings with our 50/30/20 Budget Calculator.

3. Pay Yourself First

A simple way to make sure you achieve your monthly savings goal is to automatically transfer a set amount of money into a savings account each time you get paid — in other words, pay yourself first. If you wait to see what’s leftover after you pay your bills and do your shopping, you may not have much — or anything — to set aside.

To get started with saving, you may want to open a dedicated savings account then set up a recurring transfer from your checking account into that account on a set day each month (ideally, right after you get paid). You can base the transfer amount on the savings goal you set out in your budget.

If you want to earn a high rate and pay the lowest fees on your savings, consider storing your savings in an online account. Without the added expenses of large branch networks, online banks are typically able to offer more favorable returns than national brick-and-mortar banks.

4. Build an Emergency Fund

If you don’t have one already, you’ll want to build an emergency savings fund that covers at least three to six months’ worth of living expenses. (If you’re self-employed or work irregularly, you may want to aim for six to 12 months’ worth of expenses.) This gives you a cushion should you lose your job or get hit with a large, unexpected expense — like a medical bill or major car or home repair.

Ideally, you’ll want to keep this money separate from your spending and other savings in an account that is accessible but pays a competitive yield, such as an online high-yield savings account.

Recommended: Take the guesswork out of saving for emergencies with our user-friendly emergency fund calculator.

5. Protect Your Assets

While the emergency fund provides you with some protection, insurance provides more security in other situations. You’ll want to make sure you have adequate coverage when it comes to health, home, and auto insurance. This can offset large, sudden and unexpected expenses and losses, and reduce the possibility of going into debt.

You may get your health insurance through your employer. But with home and auto insurance, it often pays to shop around to find the best deal.

Recommended: Which Insurance Types Do Your Really Need?

6. Pay Off High-Interest Debts

If you’re paying only the minimum on your credit card balances, you may be spending thousands on interest. That leaves you with a lot less money to put into savings or investments to grow your wealth. Coming up with a plan to knock down — and eventually eliminate — high-interest consumer debt will help you save money in the long term and improve your overall financial health.

There are a number of strategies for reducing debt. One is the debt avalanche method, which prioritizes paying down your debts in order of the one with the highest interest rate to the one with the lowest, while still making the minimum payment on the other each month. Another approach is the debt snowball method, which involves paying down your debts in order from largest to smallest, while continuing to pay the minimum on the others each month.

7. Start Investing

The key to building a nest egg large enough to live on in retirement is to start investing regularly as early as you can. Even if you have a low salary and can only afford to put a small amount into your retirement account each paycheck, that money will go a lot further if you start now. That’s thanks, in part, to the power of compound interest, which is the interest your interest accumulates.

If your company has a 401(k) or other retirement savings plan, consider contributing a portion of each paycheck into that account. If your employer matches a portion of your contributions, even better — that’s free money toward your future.

What’s the Difference Between Financial Wellness vs. Financial Literacy?

Financial wellness and financial literacy are interconnected concepts, but they are not the same thing.

Financial wellness involves the overall state of a person’s financial health, encompassing their behaviors, attitudes, and actions towards money management. It includes actions like budgeting, saving, investing, and debt management. Achieving financial wellness requires applying financial knowledge effectively to attain financial stability and security.

Financial literacy, on the other hand, refers to possessing knowledge and understanding of financial concepts and principles, such as budgeting, investing, loans, and credit management. While financial literacy is essential, achieving financial wellness involves not only understanding these concepts but also implementing them effectively to manage finances and achieve financial goals.

The Takeaway

Financial wellness is about more than just the numbers in a bank account — it’s a holistic approach to managing your money that encompasses various elements of personal finance. People who are financially well can comfortably pay their bills and manage their monthly expenses, without living paycheck to paycheck. They can also set money aside for emergencies, as well as short- and long-term goals. They’re quick to bounce back from any financial setbacks because they have the right resources and strategies in place.

By integrating budgeting, saving, debt management, and investing into your overall financial strategy, you can take proactive steps towards financial wellness, paving the way for a more peace of mind now, and a more secure financial future.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is an example of financial wellness?

An example of financial wellness is an individual who consistently lives within their means, has minimal debt, regularly contributes to savings and retirement accounts, and has a well-thought-out financial plan to achieve their financial goals.

What’s the difference between financial wellness and financial well-being?

The terms financial wellness and financial well-being generally refer to the same thing — your ability to live within your means and manage your money in a way that gives you both satisfaction and peace of mind. It includes balancing your income and expenses, staying out of debt, and saving for the future.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

High-paying, high-demand occupations don’t always require a degree from a traditional four-year college. What if you could dramatically increase your income with a certificate or two-year degree from a trade school?

A trade school (also known as a vocational school) prepares students to enter a career that requires specialized training, such as being a medical assistant, plumber, dental hygienist, paralegal, or veterinary technician. Trade schools also offer a more affordable alternative to a four-year college or university.

Is trade school for you? Here’s a look at the pros and cons.

Is College Necessary for Your Career?

It seems like there’s more and more emphasis on attending a traditional four-year college or university right after high school, but is it absolutely necessary for your career?

It depends on the type of work you want to do. While traditional four-year schools provide students with the general skills necessary to become well-rounded learners, a trade school provides vocation-specific courses. Trade school students don’t need to take classes outside of their field of study but instead focus only on preparing for a specific occupation. Depending on the type of career you’re looking to get into, you may or may not need a four-year degree.


💡 Quick Tip: With benefits that help lower your monthly payment, there’s a lot to love about SoFi private student loans.

Understanding What a Trade School Is

A trade school, or vocational school, focuses its curriculum on specific skill-based vocations. But don’t let the name “trade school” fool you into thinking these schools are just for mechanics or electricians.

There are a wide variety of trade school programs specializing in careers in web design, entrepreneurship, software development, culinary arts, film production, nursing, paralegal studies, and many other areas of study.

Pros of a Trade School

Trade schools can have plenty of advantages. Here are a few to consider.

Specific Course of Study

A trade school can be a solid option for those who know what career they want. Trade schools often have a more focused curriculum. Students generally won’t have to spend time filling general education requirements. Classes are curated to the student’s chosen field and some programs offer hands-on training.

You won’t have to worry so much about choosing the right major. Trade schools cover specific areas of study, which can help you zero in on your career choice.

Less Time to Complete Than a Four Year Degree

Another pro of a trade school is it typically takes less time to complete your degree. Students can often pursue short-term certificates, one-year diplomas, and two-year associate’s degrees, although they may need to get additional training or an apprenticeship for certification or licensing depending on the chosen career field.

Recommended: What Are Apprenticeships?

Faculty Attention

Attending a trade school can also mean more one-on-one attention from faculty. Generally, trade schools boast smaller class sizes than four-year colleges and universities. This could mean more individualized attention from faculty.

If you study better with less distraction (and fewer people), a trade school may offer a conducive learning environment.

Cons of a Trade School

While trades schools have many advantages, they’re not for everyone. Here are some cons to consider.

Extremely Focused Curriculum

For students who know what they want out of a career, the focused course of study is a pro. But for students who aren’t sure what they want to study, the narrow focus may be limiting.

Non-Traditional College Atmosphere

Things are done a little bit differently at a trade school versus college. If you end up attending a trade school, you might not have that traditional university feel of game day Saturdays, Greek life, or pulling an all-nighter at the library.

You most likely won’t be living on campus in a dormitory setting, either. This could be seen as a disadvantage if you’re craving a more traditional college atmosphere where students wear school gear daily.

Narrow Focus May Limit Career Options in the Long-Term

With a trade school degree, students specialize in a specific area. This can be great for job placement after graduation, especially when there is a skilled-labor shortage. However, over time, trade schools may not prepare students for changes in their chosen industry. A broader degree may lead to more flexibility and versatility in the workforce.

Recommended: Community College vs College: Pros and Cons

How Much Trade School Costs

So, how much does trade school cost? It depends on what program you apply for and how long the program takes to complete. Generally speaking, however, you can enroll in a trade or vocational program for around $5,000 per year and graduate within two years. Keep in mind that there could be additional costs, such as licensing, outside of school to get started on a career path.

This is significantly less than attending a traditional college. According to the Education Data Initiative, the average cost of going to a four-year college is $36,436 per student per year, including books, supplies, and daily living expenses.

Trade school can be a more affordable option, and many schools offer financial aid and scholarships that could help further lower the overall cost.

Recommended: How Much Does Culinary School Cost?

Can You Take out Loans for a Trade School?

There are plenty of student loan options for traditional colleges and universities, but what about taking out loans for a trade school? Some private lenders may provide private student loans for trade schools or associate’s degree programs, but many do not. Additionally, the lenders that do offer these types of loans will review your credit history and other factors before determining the type of financing you’ll qualify for.

Federal aid, including subsidized federal student loans, is also available for some trade schools, though you must meet certain requirements. For instance, you must be enrolled at least half-time in a program that leads to a degree or certificate. In addition, the school must be accredited. You can search for accredited schools through the Department of Education’s database .

To apply for federal student loans, you must complete the Free Application for Federal Student Aid (FAFSA). This is the government’s official application for federal student loans, as well as federal grants and work-study.


💡 Quick Tip: Would-be borrowers will want to understand the different types of student loans that are available: private student loans, federal Direct Subsidized and Unsubsidized loans, Direct PLUS loans, and more.

The Takeaway

Trade school can be a smart choice for students who have a specific career path in mind. Generally, trade school is more affordable than a four-year college degree, and can take a shorter time to complete. Some schools may be eligible for federal financial aid. However, You may not qualify for federal student loans if your program is not accredited. And while some private lenders offer loans for trade school and associate’s degree programs, others (including SoFi) do not. You generally have more financing options when choosing a four-year college or university.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

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SoFi Bank, N.A. and its lending products are not endorsed by or directly affiliated with any college or university unless otherwise disclosed.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Refinancing student loans involves taking out a new student loan (ideally with better rates and terms) and using it to pay off your existing loans. Generally, the reason why people refinance student loans is to save money, although there are some additional benefits that come along with refinancing.

Refinancing private student loans can be an easy decision if your income and credit score can qualify for a lower rate than you got originally. You can also refinance federal student loans with a private lender, potentially at a lower rate. But doing so means giving up federal benefits and protections, so it’s important to weigh the benefits against the risks.

Here’s what you need to know about refinancing student loans so you can decide if this option is right for you.

Benefits of Refinancing Private Student Loans

Refinancing private student loans comes with a number of potential perks. Here are some reasons why you might consider a student loan refinance.

A Lower Interest Rate

One of the main reasons people refinance their existing student loans is because they can find a lower interest rate through a new lender. This can help you save money, potentially thousands over the life of your loan. It can also help you pay off your loan faster, or lower the amount you pay each month.

While student loan interest rates have been on the rise in the last couple of years, you may still be able to do better if your financial situation has considerably improved since you originally took out your student loans.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Reduced Monthly Payments

Another reason why people refinance their private student loans is to lower their monthly payments. You can do this by qualifying for a lower interest rate. Or, you can do this by extending your repayment term. Generally, the longer the loan term, the less you pay each month. Just keep in mind that extending your loan term could cause you to pay more in interest over the life of your loan.

Consolidation of Multiple Loans

If your student loan debt is a messy mix of loans, it can be difficult to stay on top of your payments and track your repayment progress. In this scenario, refinancing can double as a form of debt consolidation and allow you to combine those different loans. Once you refinance, you’ll only have to deal with one loan (and one payment and one due date) each month.

💡 Recommended: Refinancing Private Student Loan

Releasing a Cosigner

When students take out private student loans, they generally need a cosigner. These are usually family members or friends of the student, and they share legal liability for the loan.

If you originally needed a cosigner but are now in a financial position to handle your debt on your own, you might consider refinancing your private student loans. This will give you a new loan and, in the process, release your cosigner from liability for your debt. If you currently have a higher income or credit score than your cosigner, you might even qualify for a better rate.

💡 Recommended: Private Student Loan Refinance

Factors to Consider Before Refinancing

To determine if refinancing is the right move for you, here are some factors to consider.

Credit Score Requirements

Not every borrower is eligible for refinancing. To get approved, you typically need a credit score of at least 650. A score in the 700s, however, gives you a much better chance of qualifying.

Your credit score also helps determine your new interest rate. Generally, the better your credit score is, the more competitive your interest rate will be. If you can’t qualify for an attractive refinance on your own, you might want to recruit a cosigner who has excellent credit.

Financial Stability

A good credit score is one qualifier for a favorable refinance rate, but that’s not the full story. Lenders will generally look at a wide range of financial factors when determining your interest rate, including your annual income and your debt-to-income ratio (how much of your monthly income you currently spend on debts).

If all three of those financial factors have improved since you’ve taken out your private student loans, it can be worth shopping around for better terms. If, on the other hand, you don’t have consistent earnings and/or have a lot of credit card debt, you’ll likely want to wait until your situation stabilizes before looking into a refinance.

Recommended: Can You Refinance Student Loans More Than Once?

Length of Repayment Term

Refinancing allows you to alter your payment plan. Once you qualify, you can typically choose the new term of your loan, whether it’s five, 10, or 20 years. By setting a new repayment term, you can decide how quickly you want to pay off your loans.

You might choose a shorter repayment term to pay off your loan faster and potentially save on interest. Or, you might opt to go with a longer repayment term to lower your monthly payments. Keep in mind, though, that extending your term may mean paying more in interest over the life of the loan. It will also take you longer to fully pay off your loans.

💡 Quick Tip: Refinancing comes with a lot of specific terms. If you want a quick refresher, the Student Loan Refinancing Glossary can help you understand the essentials.

When Refinancing Might Not Be the Best Option

Refinancing isn’t the right move for every borrower. Here are some scenarios where it may not make sense to refinance your student loans.

You Can’t Get a Lower Interest Rate

Before choosing to refinance, you may want to shop around and see what rates you can potentially qualify for.

Many lenders offer online prequalification where you can enter some information to receive a rate quote without having to submit an actual loan application (which results in a hard credit inquiry). Prequalifying lets you shop around for the personalized rates and terms so you have a better idea of what to expect if you were to refinance, without hurting your credit.

If you can’t get a better rate than you currently have, refinancing might not make sense, at least right now.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

You Have Federal Loans and Could See a Decline in Income

If you have federal student loans and think your income could drop, or you might lose your job, it’s generally not a good idea to refinance those loans. Doing so means giving up federal student loan relief options, such as deferment and forbearance, as well as government programs like income-driven repayment. These protections could come in handy should you run into any financial hiccups.

Some private lenders offer relief programs but they may not be as generous as what you can get with the federal government.

You Are on an Income-Driven Repayment Plan

Income-driven repayment (IDR) plans are one of the many benefits available to federal student loan borrowers. When you choose one of these plans, the amount you pay each month is tied to the amount of money you make, so you never need to pay more than you can reasonably afford. Generally, your payment amount under an IDR plan is a percentage of your discretionary income (typically 10% to 20%).

Under all IDR plans, any remaining loan balance is forgiven if your federal student loans aren’t fully repaid at the end of the repayment period (either 20 or 25 years).

If you are currently on one of these federal repayment plans and you refinance, your loan becomes a private loan and you lose access to IDR plans.

You’re Working Toward Student Loan Forgiveness

In addition to the loan forgiveness associated with IDR plans, the federal government offers other types of loan forgiveness programs, including Public Service Loan Forgiveness, which is for public-sector workers, as well as a separate program just for teachers. If you think you may benefit from any of these federal relief programs, it’s probably not a good ideal to refinance your federal student loans. Doing so will bar you from getting your federal loans forgiven.

The Takeaway

So should you refinance your student loans? The answer depends on your financial situation and repayment goals. Generally, refinancing your student loans makes sense only if you can qualify for a lower rate than you have now.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Why do people refinance their student loans?

Often, people will refinance their student loans to get a lower interest rate, a lower monthly payment, or both. Refinancing can also simplify student loan repayment by replacing multiple loans with a single loan and just one monthly payment.

Why should you avoid refinancing student loans?

Refinancing generally doesn’t make sense if you can’t qualify for a lower rate. You’ll also want to avoid refinancing if you have federal loans and are using (or plan to use) federal benefits like income-driven repayment or student loan forgiveness. Once you refinance a federal student loan, you’ll no longer have access to these federal programs.

Why should private student loan borrowers refinance right now?

You might consider refinancing your student loans now if you are able qualify for a lower rate than you originally got. Refinancing also gives you the opportunity to change the terms of your existing loan, remove a cosigner, and simplify your repayment process by replacing multiple loans with a single loan.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.