Being well in life can depend on your pockets

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What does it mean to be financially “well?” This question has really peaked my interest for a long time. There are many factors that contribute to someone’s financial wellness, and they are fairly universal since they can apply to a college student just as much as they can apply to a professional reaching retirement age. These factors can include personal finances/budgeting, financial risks and investing for retirement.

While there is an astronomical amount of information on all of these topics (thanks, Internet!), I have tried to condense some of the information in fairly simple terms. This is a great jumping off point if you are interested in improving your financial wellness!

Having a good understanding of your personal finances is an integral part of becoming a financially well person. Knowing exactly where your money is coming and going is part of being fiscally responsible. Many people find it very helpful to create a monthly budget to provide them some guidance. A simple way to do this is to record exactly how much income you are receiving, whether it be from a job, an investment, or otherwise. Next, you can track everything that you spend that money on. This is a very wide range of things; from car payments to grocery bills to clothes shopping. Understanding exactly how much you are spending and what you are spending is possibly the most important part of your personal finances. Once you have your monthly income and monthly expenses, find the difference (income –minus expenses). If the difference is a positive number, you are living in a financially sustainable way. If the difference is negative, you are actually losing money every month, which means you are living in a financially unsustainable way.

While the concept of keeping a budget and sticking to it is simple in theory, it can be very hard to limit ourselves to spend less than we earn. It takes a lot of focus and discipline to do this. The outcome of being financially responsible is a sustainable lifestyle that minimizes financial stress and allows for a lot of flexibility when something like poor health or unintended expenses come up (and they always do).

We can separate financial risks into three categories: loss of income, unintended expenses, and outliving assets in retirement. Loss of income can be due to a whole host of things like death, sickness, injury or loss of job. Unintended expenses are things like medical bills after an accident or natural disaster causing damage to the home. Outliving your assets in retirement is most likely the least consider risk people have. Most people don’t really worry about retirement until it is staring them in the face. This is obviously not the correct way to do this, considering time is one of your greatest assets when it comes to investing. Taking advantage of very simple investing strategies and placing them in a work sponsored 401k or IRA, letting them sit and profit from compound interest is a very popular and simple way you can hedge against outliving your assets.

Therefore, realizing and obtaining financial wellness goals can be broken down very simply – be informed and active in your personal finances and minimize your financial risks. The things discussed in this article are the tip of the iceberg when it comes to financial literacy, but understanding that this is the starting point is the first step in becoming financially well.

 

By Ben Eccles

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