There are two major problems that everybody faces — health problems and financial problems — and the two are often closely connected.
Studies have found that when you build discipline in an area like exercising regularly it tends to carry over into other areas, such as saving habitually.
It also costs more to be sick than healthy. Medical debt is the No. 1 cause of bankruptcy in the U.S., and most of these people are well educated, middle-class homeowners with medical insurance. Medical debt is also the No. 1 cause of homelessness.
“It takes a certain mindset and discipline to get healthy, to fight off a disease, and also to save and invest money and not waste money on frivolous things,” says Carina S. Diamond, CFP®, AIF®, managing director of SS&G Wealth Management. “Health and wealth are naturally aligned because they both aim to help you live your best life, whatever that means to you. They both are about balance and trade-offs.”
Smart Business spoke with Diamond about steps to becoming wealthier and staying that way, and the surprising connection to health.
How can people become better disciplined about saving?
One of the biggest things — and it may sound silly — is to write it down. Just like you write down a New Year’s resolution of going to the gym twice a week, mark down that twice a year you’ll increase your 401(k) contribution or pay down your credit card debt by June.
Also, many people get an annual physical, but they don’t review their finances and update their legal documents on a regular basis. It’s common for financial planners to hear that someone has no idea where an old 401(k) is or what happened to a divorce settlement. Part of this check-up should include ensuring both spouses or partners understand the assets, debts and relevant financial matters, including where everything is.
What additional steps can help you better manage finances?
Get a handle on your expenses by tracking them, giving you an idea of the ‘burn rate.’ What does it cost to run your household every month, every quarter, every year? Sometimes this is easy, but many people have a tough time with it.
Before you can start a savings plan, you need to know what you can afford to save. Tracking expenses through a spending diary can be an eye opening experience. If you haven’t done it, it’s like when you haven’t been to the gym in awhile and you get on the treadmill. The next day, you can’t believe your legs are like rubber. People have no idea how much they are out of shape — or how much they are spending.
Once you’ve figured out where you stand, how do you move forward?
Once you’ve gathered the information, what are your goals? It’s not enough to say you want to have a good retirement someday or hope to send your kids to college. To have a useful financial plan, you have to quantify it with dollar amounts and time frames, such as ‘I want to retire in 10 years and be able to spend $5,000 a month after tax.’
The people who are most successful are the ones with set goals that they track. If you know you need help, just like you might hire a personal trainer to help you get in shape, a financial planner can help hold you accountable.
In addition, it’s important to identify and assess risks of what might happen. For example, if you or your spouse or partner became disabled and were no longer able to work, what would it do to your budget?
Is there anything else you wanted to share?
I’m a big believer in setting limits on helping others. People can get into financial trouble when they help other people too much — their kids, parents, siblings, friends, etc. For example, baby boomers have worked hard to drive a nice car, have an iPhone and go to Starbucks, but they think their kids should have those same things without earning them. Many people are subsidizing their kids’ lifestyles well into their adult lives.
If you can afford it, that’s fine, but if you plan on working until you’re 70 and then you have health problems, what will you do to ensure financial security? Like on an airplane when the cabin pressure drops, put your mask on first, then help someone else. ●
Carina S. Diamond, CFP®, AIF®, is the managing director of SS&G Wealth Management. Reach her at (330) 598-2208 or [email protected].
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