In 2015, The Consumer Financial Protection Bureau did a survey to determine the four elements of

financial well-being. In summary, financial well-being can be defined as a state of being wherein a person
is able to fully meet current and ongoing financial obligations, to feel secure in their financial future, and
to make choices that allow enjoyment of life.

How to

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Security

Security, for the present time, is the ability to exercise control over day-to-day, week-to-week, month-to-
month, and year-to-year personal finances. Security for the future is to have the required capacity to
absorb financial shock. Security is most visible in the forms of an emergency fund, saving account, or
other liquid investments that you can tap into to cover an unexpected financial need. It is your
contingency financial plan against any financial shock.

Freedom

Freedom of choice for the present time is the ability to make choices to enjoy life knowing that you have
financial security measures in place. Freedom of choice is what allows you to reach your goals knowing
that your wealth is made out of assets and not borrowed funds.
Security and freedom of choice go hand in hand. You cannot have one without the other if your aim is to
create a life of financial well-being.

Depending on the level of your debt, there are many strategies to help you combat debt and reach
financial security and freedom.

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How to

Not including a mortgage, personal and consumer debts are categorically in the form of revolving
payments such as credit cards or installment payments - such as a car loan payments. As in most debts,
the interest rate and the length of the debt cycle decide the total cost of repayments. It is advisable you
pay off debt with (1) the highest interest rate first, (2) the longest terms of years, or (3) the small
amounts first to free funds so you can concentrate on other debt payments.

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Regardless of which strategy you adopt, freeing yourself from personal and consumer debt can help you
reach your financial goals. Your aim is to stay within the rule of 20/10, as discussed in the prior chapter,
in order to keep your budget healthy. Think of all the saving you could have if you did not waste your
money paying interest, late fees, and penalties while acquiring consumer goods.

Another strategy is to plan and save for your big purchases. Then you can afford to pay for them in full
and on time in order to avoid paying interest and late fees even if you use your credit card to make such
purchases.
 In this chapter, we will discuss how to master the principles of budgeting and what to do with each core
concept as you create a budget. Logically, to reach a balanced budget, you only have 2 basic choices: you
either increase income or decrease spending. (Review our Budgeting module in this MoneyCounts series
for additional information.)

How to

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How to increase income

Income can be derived from multiple sources, it can be active such as a pay check from employment and
self-employment; or passive such as income from investments. There are many ways to help you
increase your income, you just have to tap into your potential and do your research so you can maximize
the return on your investments. Be careful and do your homework. The goal is to make more money and
not lose any in the process.

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How to decrease spending

Decrease or cut spending is the other choice to help you save money so you can invest or free yourself
from debts. You can achieve this goal by adopting a lean budget. Here are the steps to help you cut
spending painlessly.

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List all of your current monthly/yearly bills

Sort them by WANTS and NEEDS

: Hint - use a red highlighter for all WANTS and a green highlighter for all NEEDS

Formulate a plan to STOP all spending with red highlights

: You can do this gradually or quit cold turkey, depending on your will and your level of commitment to
freeing yourself from the shackles of debts.

Examine your NEEDS and find ways to make them LEAN

Your goal is to strip your budget to the bare minimum to compare and balance your expenses with your
take-home income.

: You can always build your wants back up as your saving gets more significant. Many people report that
saving can be addictive because it guides you to a feeling of financial freedom and security.