Healthy Financial Life

In February I wrote an article about the habits of a “Sick Financial Life”.  It was very easy to write as the problems listed are common habits that we see harming our members on a regular basis.  Today I decided to look at the positive habits that we also see on a regular basis (but we do see people in bad situation more than those with good, after all, the doctor doesn’t tend to see the healthy people).

The people we see who are leading a healthy financial life either have or are doing the following:

1. 1.    Set realistic short term and long-term financial goals.  They then create and stick to a plan in order to achieve them.
2. 2.    They know their financial situation.  They keep track of debt monthly, and review their investments at least annually.
   
3. 3.    They spend less than they earn.  This covers many areas including buying a house that doesn’t max out their payments, buying vehicles 2 or 3 years old rather than brand new, and when times are tight they cut back on luxuries like trips, satellite packages, and movies.  In fact, these people tend to spend less on those luxuries even in the good times, and as a result they rarely struggle with their monthly payments and obligations.
4. 4.    They clear off debt quickly, particularly high interest debt like credit cards.  Debt means you are paying that interest to someone else and not yourself.  High interest debt, like credit cards, means you are paying even more money to someone else and not yourself.
5. 5.    They save at least 10% of what they earn.  That can be divided up between emergency savings (immediate) and retirement savings (long-term).  It is important to do this even while paying off your mortgage.  The more time you can have interest working on your savings, the better off you will be.
6. 6.    They invest regularly and wisely.  The best way to save money is to put some away every month.  What you invest in will determine how much you earn on the investments, but you don’t want to risk so much that you could lose most of the money you have worked so hard to save.  Don’t invest in only one industry, and make sure you get good advice for tax purposes, rather than rely on coffee shop investment and tax advice.
7. 7.    They have created a will and spoken to their family about it.  Do it years before you think something might happen to you, especially if you have children, whether they are young or old.
8. 8.    They have insurance.  Generally you will want about 5 to 7 times your annual salary, unless you have young kids when you would want about 10 times your annual salary.

Some readers will think that the above habits sound great and they could do all of the above if they earned $150,000/year.  The reality is that there are people earning $150,000 and living with more bad habits than good, and there are people earning less than $50,000/year who have developed all the good habits mentioned here.  It comes down to priorities, and the willingness to change old habits and create new habits.  The people who live the healthy habits sometimes sacrifice short term “luxuries” so that they can have financial security.  Those with bad financial habits tend to sacrifice financial security for the sake of short term luxuries.

We do see many people who are living a healthy financial life, and as a result they don’t have the stress that comes with living on the financial edge.  It would be great if everyone could feel the sense of relief and satisfaction that comes from controlling their finances, instead of their finances controlling them.  Jerry