Last Updated on December 16, 2017 by Marie Bautista
A lot of people labor under the myth that financial wellness can only be achieved by those who are already wealthy. The truth is, given there is no official definition of financial wellness, there is a route for everyone. Having a good salary and a large pot of savings to begin with helps, of course. But if you are prepared to make a few sacrifices, there is no reason why the average family or household can’t achieve ‘zen’ when it comes to finances.
In today’s guide, we’re going to take a look at everything you need to think about when it comes to achieving financial well-being. It’s not an easy path, but once you get near the ultimate goal, you will find yourself worrying less about money, which, let’s face it, is the number one concern the vast majority of households have. Read on to find out the full facts behind financial wellness, and how to achieve it.
The importance of financial wellness
As we discussed above, one of the biggest worries encountered by every family at some point is all down to money. Even thinking about the concept of money can cause a huge amount of stress – if you don’t have any, what does life look like? And once you start stressing and voicing your concerns, what does it do to your relationships? When you look at the top reasons for divorce, family grievances, and even criminal activity, it’s often money that is the root of all of them. Like it or not, money has a significant role in our society, and without it, you will struggle to pay for anything, from food and shelter all the way through to medicine and giving your kids the best possible future.
However, when we talk about financial wellness, we’re not discussing making millions of dollars every year. Having money doesn’t necessarily remove all those pressures and strains – and can sometimes even exacerbate them. As your salary gets more significant, the chances are that your household spending goes up, too, and you become accustomed to a more luxurious way of life. And if things go wrong, the fall back to the bottom is a hard one to deal with.
Instead, financial wellness means you don’t spend every waking hour worrying about money. And it is achievable, even if your budget doesn’t suggest it is possible right now. Ultimately, financial wellness boils down to having a peace of mind, and fewer concerns about economic stress, all of which leads to a more contented, safer life.
The worst can happen – and does.
No matter how much money you have right now, but no one has a 100 percent guarantee that things will be the same tomorrow. Life is full of unexpected events, and not all of them will go your way – and it’s critical that you are prepared to handle these events as and when they arise. Let’s take a look at some of the basic disasters that could fall on any household, at any time, without warning, starting with something that is often the first thing we encounter first: job loss.
Losing your job is something everyone should be prepared for. If recent years have taught us anything, it’s that even those who seem guaranteed in their role are, actually, far from it. Take the financial crisis of 2008 as the perfect example – all those high-earning whizzkids in the traditionally ‘safe’ financial sector were at work one day, and packing their possessions up in boxes the next. It can happen that quick to anyone, and no market or industry is safe.
Many of those individuals ended up facing another common financial emergency – building up bad debts. All it takes is a little unfortunate luck in life, as well as some spending irresponsibility, and you could be facing a barrage of calls from debt collectors, a hit on your credit score, and financial disaster. Wealthy people can end up sleeping rough on the street, too – whether they have to face the cold, hard truth of bankruptcy or get hit in the pocket after a nasty relationship separation or divorce.
Other disasters can occur, too. What if your business is destroyed by a hurricane, earthquake, or huge flood in your hometown? What if you are injured, and can no longer do your job that has paid you so well for the past couple of decades? What if your spouse dies, and you have to bring up kids by yourself? Financial catastrophe isn’t as rare as you might think, and to protect yourself against the fallout, there are a few things you will need to do – which we are going to go through next.
OK, so now let’s start getting into the nuts and bolts of protecting yourself from emergencies and setting yourself up for financial wellness. We’ve covered planning for emergencies before on this blog, but there are a few basic principles you should know that are well worth going through again.
First of all, insurance is critical. With a good insurance policy, you can protect yourself from all of the major disasters that can happen to your finances in life – and a lot more besides. Insurance can help you if you suffer from a severe injury, and can no longer work. Disaster insurance might be worth looking into if the area you live in suffers from an abnormal amount of incidents of natural disaster. You should also seek to insure yourself for later life, generally, in the form of a private retirement fund – there are no guarantees that social security will even exist in 20-30 years time. Finally, make sure you take out life insurance, to make sure your spouse and children have some kind of future if you aren’t around anymore.
Another way of insuring yourself is to build up an emergency fund. Again, you don’t have to be wealthy to do this, just sensible with your money. Use budget tools such as You Need A Budget to set up savings goals, identify areas of savings, and stop living from paycheck to paycheck. The ultimate goal should be to have between 3-6 months of savings in an emergency fund, that is only to be used in the event of a disaster. Having a resource like this will help you negotiate everything from a broken car or boiler, through to losing your job or experiencing long-term periods of illness.
There’s one more important point to remember when planning for emergency protection: your borrowing. While debt is not necessarily a bad thing – it helps us buy a house and a car, for example – it’s fair to say that some deficits are worse than others. So, while the popularity of online loans and quick borrowing has increased over recent years, it’s important only ever to borrow when you know you can pay it back, and also within your means. Using a credit card or bank loan to subsidize your lifestyle is not a good idea, and will only end in tears.
Building a future
All this aside, if there’s one thing you need to do to enjoy financial wellness, it’s plan for the future. Once you have six months-worth of your emergency fund set up, you can start to use the money you were previously pumping into that fund to build up other savings. It doesn’t matter how much that amount is, as it will all go towards vital things in your life that will ultimately end up costing you a fortune. Let’s say you retire at 65 – you could have another 25-30 years of life, and without a proper retirement fund you might find your later years a complete struggle.
Building up your household savings is also the only way to get through the sheer expense of bringing up children, too. According to research, it costs something like $250,000 to raise a child and put them through their initial education – even more, if you pay for them to go to university. That’s an eye-watering sum of money, and the more you can save now, the less it will impact your lifestyle in the future.
Achieving financial wellness
Some of you reading this might be thinking these are all impossible goals – but they aren’t. As we discussed in the intro, yes, achieving financial wellness is not an easy task, and it’s made even more difficult if you don’t have substantial earning power. But if you are willing to make some sacrifices, and stop spending on unnecessary things, you will find that you can free up a surprising amount of cash to pump into an emergency fund and savings account.
Ultimately, it’s all down to what you think is essential in life. If you want the stresses of your finances to ruin your relationships, impact on your kids future, and cause you ill health, then you are free to spend money on whatever you like and build up debts everywhere you go. But if you want to actually enjoy life together, free from the stress of needing money, then make those sacrifices sooner rather than later, and reap the rewards of financial wellness.