How would you define success? Obviously, that answer is different from person to person. For example, some would say that this would be starting your own business, having a family, or having the flexibility to travel the world. While all of these are worthy answers, they’re also impossible if you aren’t financially sound.
You may have heard of this term tossed around before. But, what exactly does it mean?
Sabrina from Finance Over 50 has a straightforward definition, “Being financially sound means that you consistently make good financial decisions that increase your net worth, and you’re able to maintain this state for the foreseeable future.”
More specifically, in the world of finance, the phrase “financially sound” refers to being financially healthy and having the ability to make favorable financial decisions. Additionally, financially sound individuals or decisions are characterized by stability, security, and progress.
Saving money for emergencies, as an example, is always a financially sound decision. The first reason is that you are enhancing your financial stability by protecting your assets. Secondly, you’re strengthening your financial security by preparing for emergencies. And, you’re also making progress toward your financial goals by having money stashed away.
Financed cars, on the other hand, decrease your cash flow by adding monthly payments. In addition, if you’re in a position where you owe someone else money, your financial security will be compromised. Last but not least, you are paying interest on an asset that will depreciate, which is the opposite of economic progress. For example, by 2021, the 2015 BMW 7 Series had an average five-year depreciation of 72.6%.
In short, building an emergency fund is being financially sound, financing a new vehicle, not so much.
The Benefits of Being Financially Sound
Why is being financially sound is essential? Because being financially sound will impact every aspect of your life. In fact, if you consistently make financially sound decisions, life becomes easier and more enjoyable. Here are some ways being financially sound will help you in your life.
Improved mental health.
It should come as no surprise that a person’s mental health and financial circumstances are intertwined. In fact, there are over 1.5 million people suffering from both problem debt and mental health problems in England alone.
What’s more, 86% of people with mental health problems who responded to a Money and Mental Health survey reported that their financial situation had made them feel worse.
If these mental health concerns aren’t addressed, this can lead to the following symptoms;
- An excessive amount of worry or fear
- A feeling of extreme sadness or low mood
- Problems concentrating or learning
- Mood changes
- Changes in sleep or eating habits
- Substance abuse
- Social withdraw
- Suicidal thoughts
Enhanced physical health.
Back in 2015, the American Psychological Association reported that “72 percent of Americans reported feeling stressed about money at least some of the time.” Fast forward to 2021, and a CreditWise survey found similar results, with 73% of Americans ranking their finances as the No. 1 stress in life.
Why is this so concerning? And, what exactly does it have to do with physical health.
Chronic stress isn’t just uncomfortable; it can be deadly. Many experts have ominous annotated stress as “the silent killer.”
The short-term effects of stress can include headaches, digestive distress, fatigue, or weakening the immune system. But, it’s the long-term effects that are most concerning.
Heart disease, stroke, depression, and obesity are all markedly exacerbated by stress. So because of all the health issues caused by excess stress — being financially sound may alleviate some of this stress. And, even if it doesn’t completely erase all of your life’s stressors, you’ll have the means to address any health-related issues.
When it comes to marriage conflicts, finances are often a culprit. Of course, depending on the exact study, this could be ranked higher or lower. But, regardless, there’s no denying that money can put a strain on relationships.
“Financial stress isn’t good for anyone, but for lower-income couples, it can really affect the time and energy and focus they can put on relationships,” says Ashley LeBaron, a doctoral student in the University of Arizona Norton School of Family and Consumer Sciences in the College of Agriculture and Life Sciences.
When you think about this, it does make sense. When you cannot pay a bill or go out for date night, you might become contestants in the blame game. As a result, you may turn against each other instead of finding ways to work as a team to become more financially sound.
More personal and professional opportunities.
You have more control over your life when you manage your money well and plan for the future. By contrast, those who are continually burdened with heavy debts are accountable to the rules of lenders. And, they also don’t have the freedom to pursue their personal or professional dreams.
For example, if you aren’t financially sound, you don’t have the financial cushion to go on your dream vacation, make a career change, or expand your small business. You may also not be able to attend networking events or cover your child’s education.
Overall, if you want to have more freedom in your life and be exposed to more opportunities, then you need to make minor sacrifices for the greater good.
Ability to give back.
Another perk of being financially sound? You have the chance to give back. And, that’s important as this can;
- Lower blood pressure
- Improve self-esteem
- Reduce anxiety, depression, and stress
- Increase happiness
- Foster personal and professional connections
“With the right financial discipline, you can turn around financial struggles and get your donations underway,” writes Eric Rosenberg in a previous Due article. “But always be sure to pay off your high-interest debt before giving away money to others.”
More financially sound children.
While this might not be top of mind for most parents, if you’re financially sound, then so will your kids. As a result, they’ll understand the value of a dollar, how to set realistic goals, and make wise spending decisions.
Furthermore, they’ll know how to create more opportunities to make money. And, since they’re in an ideal financial situation, they’ll be able to give back to their community.
Your financial future is set.
“When your finances are in order, you just feel better,” says Peter Daisyme. “You also have a better sense of how to save and plan for your financial future. Plus, you have less to worry about at night, and you know the complete picture of your wealth.”
Specifically, when you’re financial future is set, you can actually enjoy your golden years. Why? Because you have the means to spend your retirement however you please — whether that’s spoiling your grandkids or embarking on a Viking cruise.
Also, you’ll be in the position to take care of any potential health-related costs, such as long-term care. And, you’ll be able to leave your heirs a legacy like an inheritance or death benefits from a life insurance policy.
How to Become More Financially Sound
So, it’s true. The way to succeed in life is to be financially sound. But, how can you make this possible?
Well, for starters, you need to have an open mind and be willing to make some sacrifices. You should also keep the following tips in mind throughout your journey.
Start today, not tomorrow.
The sooner you start saving, the better. Of course, this must be true for younger generations for several reasons. Firstly, you have more time to ride out market fluctuations. Second, before you have serious financial obligations, like a mortgage, you should build a savings reserve instead of spending it carelessly.
No matter your age, though, you should also prioritize increasing your savings annually. Even if it’s only by a small amount, it’s better than not having a financial safety net at all.
Live within your means.
Tracking your spending and creating a budget can ensure that you are living within your means. For example, following the 50/30/20 rule encourages you to divide your after-tax take-home income into the following categories;
- Essentials (50%)
- Wants (30%)
- Savings (20%)
Additionally, this will help you eliminate frivolous spending automate your savings. And, if you notice that you’re expenses are more than you’re earning, you might need to find an additional income stream until you get your finances under control.
Build an emergency fund.
Insufficient emergency funds can lead to heavy debt obligations. When you are already dealing with an emergency, adding a financial burden makes matters even worse, such as an additional stress burden.
Most financial experts recommend a three-to-six-month emergency fund. However, a wise and financially sound move would be to save eight to twelve months’ worth of expenses if your primary source of income fluctuates, like what freelancers and contractors experience.
However, even a $1,000 stashed away can make a world of difference.
Trim your debt.
Do you have credit card debt or student loans? Identify the highest interest debt first, then develop a plan for paying it off in a reasonable amount of time.
Most importantly, try to avoid unnecessary debt in the future. For instance, if you don’t have money to pay off a credit card balance when you receive the bill, then wait on making this purchase until you do.
Save for retirement.
What are your retirement plans? If you don’t intend to work every day for the rest of your life, a goal for retirement is a must. While most people don’t think about retirement much when they’re young, this is never a bad idea — especially if your place of work offers a 401k plan with employer matching.
In general, your employer matches a certain percentage of your retirement contributions. So, try to maximize your employer’s contribution. And, once you’ve maxed out these contributions, consider supplemental retirement income sources like annuities.
Have adequate insurance.
Insurance isn’t exactly the most exciting way to spend your hard-earned money. However, having insurance is a small price to pay for peace of mind if something terrible ever happens.
For example, a life insurance policy will provide your loved ones with financial security if you were to die suddenly. So even though you may find the subject difficult to discuss, it’s a surefire way to protect your family from financial hardship.
Improve your financial literacy.
You don’t have to become a financial wizard. But, at the minimum, you should improve your financial literacy so that you clearly understand the basics like saving, spending, and investing. And, if you have children, you should share this knowledge with them as well.
The Best Way to Succeed in Life is to Be Financially Sound was originally published on Due by John Rampton.
The post The Best Way to Succeed in Life is to Be Financially Sound appeared first on KillerStartups.
The Best Way to Succeed in Life is to Be Financially Sound