“Today, be thankful for how rich you are. Your family is priceless. Your time is gold. Your health is wealth.”
“Stay alert, stay alive” is every soldier's modus operandi. Today, this applies to everything else we do too: Business, Parenting, Economics, Health, Wellness, Nutrition, Relationships, Finances. They're all connected in one way or another.
As the economy shows dramatic signs of careening into another recession amidst the Coronavirus pandemic and many other factors at play, now more than ever emphasizes the importance of learning and grasping financial wellness.
The term itself is not a cliche. It’s an important concept that a lot of Americans, and people worldwide, ignore. And given what’s going on right now, society’s eyes are staying open to this.
To me, financial wellness is the capacity to have and live a healthy financial life. It means that your debts are payable (no matter what) and you have plentiful emergency savings (at least 3–6 months), cash on hand because cash is king and college and retirement savings funds (whether that’s a company 401(k), IRA, Roth IRA, brokerage account or any other trading accounts).
Additionally, financial wellness is a state of being wherein you have control over day-to-day and month-to-month finances. You also have the ability to absorb a financial shock, are on track to meet your financial goals, and you have the financial freedom to make the choices that allow you to enjoy your life.
In 2020, you must be well prepared to handle any sort of financial crisis as we have seen firsthand. In regards to what’s going on in the economy and the talks of government stimulus packages in excess of $1 trillion dollars to once again bail out the economy, Wall Street, small businesses, the airline industry, and many other companies, don’t plan for that to fully save you and your loved ones.
You must take control of that yourself. This is more than just about money, this is your life your lifestyle. And yes you need money for that but to achieve financial wellness, you need help and guidance in these four areas:
You have to know which cash flows are coming in and when they’re going out. Budgeting is telling your money where to go instead of questioning where it all went. This is not supposed to feel like a chore for most people, it’s a way of life. When you can make this simple, easy, and fun, especially teaching your children, spouse, partner or others, you’ve mastered it.
Depending on which data you look at, roughly 70% — 74% of Americans live paycheck to paycheck. Simply put, that number is too high. With no margin or cushion, every unplanned expense could potentially turn into a crisis for some people. If you have emergency savings built for example of $1,000, you may feel more secure financially in the event of something unfortunate happening.
Debt Removal (Short-term focus)
It’s no wonder that people in America are strapped with a ball and chain of debt. We live in a debt-fueled economy and some of that is worse debt than the other. When you include mortgages, car loans, student loans, credit card debt, and many other forms, between 24% — 25% of take-home pay goes towards paying off consumer's debt. Imagine freeing up that money and those funds. Where would you put it? What would you do? Think about how much more you could invest in yourself, a business, a home, or even saving for retirement.
Retirement Planning (Long-term focus)
Most individuals in America don’t save for retirement until it’s too late. At that point, there’s not enough money or income to live off of anyways. So what do you do? Simply put, we consume too much in America and we don’t save or invest nearly enough. You have to inspire yourself and others to change their paradigm and focus on changing their habits to saving and investing at least 10% — 15% of their take-home pay. Set it in an account, a business, or a real estate property and forget about it for a long time. You’ll be amazed at what compound interest does.
Moreover, here are six guiding principles I’ve learned throughout the years that have led to more structure and peace-of-mind in my financial habits as well as for others:
- Spend less than you earn. Reinforce your savings and decrease your expenses. Remember, just because you can have something doesn’t mean you need it.
- Save for future purchases. Get yourself into a habit of saving. I can certainly get better at this. Start small by taking advantage of any automated savings or investments that do exist. Then build your habit, checking in as you get closer to your goal.
- Only borrow what you can afford. Don’t deny yourself, but avoid spending on unnecessary purchases or to keep up with the Joneses. When you choose to spend now you may miss out on future long-term purchases. Remember, every dollar borrowed today is a dollar less to spend tomorrow. Don’t get caught up or trapped in credit card debt.
- Grow your money. Work with a financial advisor (fiduciary or CFP) or tax planner (CPA) to structure investments so you can gain tax advantages. Contribute as much as you can to employer-sponsored retirement plans, especially if your employer makes matching contributions. Who doesn’t love free money? If you don’t have a 401(k), then consider opening and funding an IRA or Roth IRA.
- Boost your earning capacity. Even as your earnings increase, try to live below your means and always add to your investments. Allowing your interest-earning accounts to grow will help you offset any downturns or emergency expenses.
- Preserve what you do have. Rule #1 don’t lose money. Rule #2 remember rule #1. This applies to not only life insurance for yourself and your family, your property and income, but also to your investments. The preservation of capital and wealth is imperative.
Financial wellness is also about feeling good about your financial health now and in the future. I understand the uncertainty you are going through right now because I have felt all of the emotions too while being stuck here inside. But recognize these times also breed wisdom and clarity because I feel the same way right now. You just have to trust that everything will work out even if you don’t quite know how yet.
Life and finances are the most brutal endurance sport of all time! Let me explain because right now a lot of us are forced into solitude or emergency “shelter in place” situations right now given the state of healthcare systems and the Coronavirus spreading throughout the globe. This may be a solitude that a lot of us try to avoid, myself included.
We now cannot escape the things we don’t like about ourselves. A lot of people are getting laid off from their employers, fired because businesses don’t have the cashflow or trust to manage through these weeks and months, filing for unemployment at rates out states have never seen and so much more. I myself have been out of fulltime work since February 10th so I can only imagine what others are going through now.
Imagine having a mortgage payment, car payment, groceries to budget for, children to take care of, children’s daycare bills, insurance payments, medical payments, healthcare and a laundry list of other responsibilities. I am grateful for what I have right now and I recognize very clearly that it can always be worse.
While this is a horrible time in the world and history books, we must find a positive in every situation that is thrown at us. Utilize and focus in on this time on the things you might have been avoiding or putting off or things that would haunt you or you’d regret later in life had you never finished or accomplished them. I feel like shines a bright light on a lot of people, myself included.
As the saying goes from someone who I don’t know, “this too shall pass”. Tough times don’t last but toughness, resiliency, and the people who persevere do last forever.
Remember, no matter how difficult, challenging, or pressing life’s circumstances and situations can be, how you fundamentally relate to and engage with those circumstances will have the bigger say in how they turn out. Again, the answer is deep inside you rather than outside you.
A lot of us look up to heroes and superheroes in life. This is the best time to start creating that hero in you! It’s in there and so is your greatness and financial wellness.
My Very Best,
Donovan E. Vogel