“It is a state in which a person can fully meet current and ongoing financial obligations, can feel secure about his or her financial future, and can make choices that will improve his or her life . Being financially healthy includes having a sense of control over daily and monthly finances, the ability to absorb financial shock, being on track to achieve your financial goals, and having the ability to make decisions that make your life more enjoyable . ”
This definition comes from the CFPB and its report on “ Financial Well Being in America ”
If we look closely at the definition, we will see that there are purely financial aspects and also emotional aspects about our financial situation. This means that even if the definition is accurate, there will always be an emotional and personal aspect that, as a result, gives different applications of the same definition . For example, one person may think that they are in good financial health by “paying off” all their credit cards every month, while another person may not feel that they are in good financial health if they do not have an emergency fund of 3 years of expenses, their main residence fully paid for, a high monthly savings capacity, and a million in the bank.
Emotional financial health
If this emotional part is taken into account, it can even be gambling data philippine phone number said that income or wealth level does not necessarily predict financial health. Someone with a lower income or wealth may have better financial health than someone with a higher income or wealth.
For example, FIRE (Financial Independence Retire Early) advocates take care of both aspects.
Linked to this, a saying comes to mind:
“The richest is not the one who has the most, but the one who spends the least”
It seems that St. Augustine also said that:
“The happiest is not the one who has the most, but the one who needs the least”
Delving into popular sayings always brings with it a problem, you always come across a contradictory saying such as:
"He who has little soon spends it!
Leaving aside the old sayings, it is clear that mixing financial health and emotional well-being poses a problem.
Emotional well-being is typically defined as a positive overall state of one's emotions, satisfaction with life, sense of meaning and purpose, and the ability to pursue self-defined goals.
Going deeper into this topic would lead us to a philosophical discussion.
In any case, emotional and financial health cannot be considered separately. A certain level of financial security is necessary to have emotional well-being, and a certain level of emotional well-being is necessary to enjoy financial abundance. It is difficult to have one without the other or probably impossible.
Without forgetting the emotional aspect and clarifying the complexity that it can add, let us now focus on the more quantitative aspects of achieving good financial health.
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How to achieve good financial health?
In the process of improving our financial health, it may be useful to consider the following steps. Some of them will become less relevant as we approach a good level of financial health.
Know your income and (especially) your expenses.
In general, it will be easy to keep track of your income.
In the first stage, it may also be necessary to collect and write down all expenses, however small they may be, and if you do not have information on a specific one, it is advisable to use an approximate amount. You should not forget occasional expenses such as Christmas shopping, birthday presents, etc.
Create a personal or family budget.
Once we have this data, it may be important or necessary to distinguish between fixed and variable expenses .
Until we have a good financial situation, it may be necessary to go a step further and even create a budget, whether personal or family, to combine income and expenses and try to establish potential savings.
Pay attention to your debts.
It is likely that in the process of building a certain financial well-being we will have to go into debt.
It is essential to be aware of our debts and especially those that are very burdensome (credit cards) and avoid them or cancel them as soon as possible.
Pay yourself by saving.
As soon as possible, you should prioritize paying yourself, your future self.
Establish saving as a mandatory payment to yourself. Automate that saving to a different account. This will help you gain some financial freedom , first to cover potential emergencies and then to try to create or generate passive income.
Create an emergency fund.
Once you start saving, create an emergency fund .
We have already talked about the fact that having an emergency fund has many advantages and is essential for:
– Having a cushion against unforeseen events and allowing us to sleep peacefully.
– Having an emergency fund will allow us to invest another amount of savings with a medium or long-term plan, with the peace of mind of not having to disinvest at the worst possible time.
Invest.
Once you have built up an emergency fund, only then should you think about investing and start generating what is called passive income.
The money in your checking account will be subject to the impact of inflation .
Invest for goals.
As your investment volume grows, you can find a better combination of emotional and financial health if you manage to invest with goals in mind that help you achieve well-being in both aspects.
How does investing for… sound?
My first intercontinental trip?
My first house?
My child's master's degree?
My retirement?
My little house on the beach?
If we are able to reach this level, it seems to us that investment by objectives , as long as these have a good emotional charge, can be a good way to obtain complete financial health.
But don't leave aside the emotional aspects, being happy is more important than being rich.
