We live in a world today that is increasingly focused on wellness, self-care, and mental health. Admittedly all these things are important to living a happy and healthy life, but a multitude of factors are involved, and they all must line up to be successful. While it may be hard to pinpoint one single focal point that contributes to all of these, I believe that maintaining your financial wellness would be at the top of the list for many. We define financial wellness as the state of well-being in which a person can manage their ongoing monthly bills, expenses, paying debts and then have the resources to address any unexpected financial emergencies that happen along the way. Meanwhile, we also need to plan for longer-term goals such as saving for retirement, college funds, and any large-scale purchases.
Clearly, there are many considerations that come into play to reasonably meet these objectives, all while enjoying life. This can be further exacerbated by all the things that are beyond any one person’s control. Things like inflation, rising interest rates, stock market volatility, as well as an impending recession can complicate the process of becoming financially fit.
To be financially well during turbulent economic times there are some key factors that are involved. For many having a strict budget is not too common, but when the economy begins to contract, knowing where your money goes can be very advantageous. This allows us to be more rational about elective purchases when we understand how that can impact our ability to pay for our other obligations, like the Excel Energy bill. It also gives us a better determination of how much money we could be saving for those longer-term goals like retirement instead of frittering that money away on something else. By maintaining a reasonable budget and working within those parameters it can also reduce the risk that we need to use leverage by taking out loans or using credit cards excessively. This can also be addressed by maintaining an emergency fund that can be easily accessed to pay for unexpected things that would result in some type of financial hardship. There are lots of “rules of thumb” here on the amount you should have, but every person’s situation is different and being candid about your situation will prove beneficial.
For some, the emergency fund may be there to pay for a hot water heater or furnace. For others, it may be the safety net in case of a layoff or otherwise. This is where debt becomes a critical component of your financial wellness. While there are many “good” attributes of debt there are also many potentially negative ones as well. So, maintaining a healthy relationship with debt becomes paramount when the economy changes its tune and our dollars become exceedingly more important. If our relationship with debt becomes unhealthy then that generally becomes a source of significant stress. Therefore, using a budget in conjunction with assessing debt can help to significantly alleviate the concerns that come with meeting your monthly obligations. Much of this can be attributed to “living within your means” which is not always easy or popular in our social media-obsessed world. Which emphasizes the point of having a budget, because that determines what your income must be. From here a person can then objectively look at how a debt payment can fit into their own personal budget.
While all of these forces impact us in a general sense the outcomes will vary based on our own specific situation. This is why a personalized approach to planning for financial wellness becomes increasingly important. The financial wellness of a single 20-something is wildly different than that of a 60-something pre-retiree. So a different approach and focal point are going to be necessary depending on factors like life expectancy and the ability to generate income. For the 20-something, maintaining a steady income and emergency fund can translate to financial wellness for the most part. However, for someone approaching the golden years of retirement will have a much longer “to-do” list in order to feel financially fit. Keeping in mind that our single largest source of revenue in our lifetime is our own personal output. Once our working years wind down our need for a consistent income does not and that income is the primary metric of financial wellness in retirement. Having assets is great, however, turning those assets into consistent steady streams of income can be the difference between success and failure. In order to achieve this, we need to invest and have our money work for us along the way. Which requires an investment plan that accommodates not only our objectives but our risk tolerance as well. Maintaining risk parameters that you understand and are comfortable with can help reduce the temptation to make those detrimental “knee-jerk” reactions when the markets get volatile. It can help us be diversified in our investments and look to use multiple streams of income rather than relying on just one single source.
Keeping a good perspective is often easier said than done especially when it seems that the end of the world is imminent. I always try and remind folks that the end of the world can only happen once, and while I say this tongue-in-cheek, it still rings true. We can never achieve success or financial wellness if we believe that things will never improve. This is especially true in investor behavior when we see a market decline and it becomes reactionary to either stop investing or to pull back. It's funny because when we as consumers see things go on sale, we get excited to make some purchases. However, when the stock market starts to go on sale, we clutch our wallets a little tighter and can too often miss those buying opportunities. So it’s important to objectively look at your situation and to make changes and adjustments, not only to your perspective but to your behaviors in order to start making better financial decisions. Once we do this then we have the potential to find true financial wellness regardless of the economic outlook.
This is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. This appearance is a paid placement.
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