There are a lot of money-related New Year's resolutions posted on social media every January. Many people posting want to “be more financially healthy”. As a financial planner I like and encourage the pursuit of financial health, and would like to walk you through some ideas for how to get specific if you would like to work on your own financial health.
How would we define financial health? It’s not just a number or ratio, and it can’t be measured entirely on a spreadsheet. Income and net worth alone aren’t sufficient; these numbers aren’t a good measure without knowing related timelines, spending needs and long term goals. All the usual measures fall short if we don’t know what it takes to keep you going and where you want to be. And to be truly financially healthy has some psychological aspects as well.
The Brookings Institute does a lot of research on families and finances and has published my favorite definition of financial health:
"Financial health has both a present and future orientation and considers the totality of people’s financial lives: not only whether they are able to meet current needs but also whether they are spending, saving, borrowing, and planning in ways that will enable them to be resilient and thrive."
How does this line up with your mental picture of financial health? Will you set any goals in 2023 to align your current financial life with where you would like it to be?
With any goals, we need a way to measure our current state, track progress and recognize our success.
There are many ways to measure the various aspects of personal financial health; what would make you feel financially healthy? Here are some examples of Key Indicators of financial health that you can pick from to work toward, as you read through them give yourself a grade on how you're doing at this point:
- The ability to cover your obligations, without stress, with the income at hand.
- Spending and saving patterns that support your long term goal.
- Could withstand a financial “emergency” and bounce back.
- Having control over your day-to-day and month-to-month finances.
- Being on track to meet your financial goals.
- Having the financial freedom that makes working optional.
- Being able to support or help others.
- Understanding money and your investments, having financial literacy.
- Achieving low stress and anxiety around money.
- Able to tackle money tasks with energy and optimism.
- Feeling secure in your financial future.
- Able to make financial choices that allow you to enjoy life.
- Being financially functional.
What will it take to improve or achieve these markers of financial health? Focusing on the Key Indicators that are most important to you and your family, breaking them down into the small changes required to get you there, and the intention and discipline to be consistent in pursuing them.
I hope this inspires you to think about your own financial health, helps you refine your financial resolutions for this year, and lets you achieve a money life that is fulfilling both financially and emotionally. I love talking about goals and financial health, book a meeting with me if you would like to discuss further.