savings

Financial Health

Just as physical health makes a better life than being unusually tall or a popular kind of attractive, so financial health is a different thing than wealth. Just look at the athletes who become wealthy at a young age and then die poor. What they needed, what we all can benefit from, is financial health, something that doesn’t require a specific level of income or assets. 

A financially healthy person knows when to stop. When to stop recreational shopping, gambling, spending on games or collectibles, when to stop letting money seep away without noticing where it went. 

A financially healthy person looks ahead farther than the next paycheck. They realize that unexpected expenses aren’t really unexpected. We know to expect a car repair or a medical bill, but we don’t know when to expect it. The healthy response is to save up as if you knew it was coming next month, since it might. They start saving a little for retirement as early as their thirties. They put aside 1/6th of the car insurance bill each month so when the half-year bill comes, they are ready. 

A financially healthy person addresses emotional problems with appropriate solutions instead of covering them with the temporary thrill of a new purchase. 

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Taking the Long View

Some things just take time. Put aside $1000 in an interest-earning account and leave it alone for twenty years and you’ll have a ton of money. Plant a shade tree now, and ten years from now you’ll have shade. Have a baby now and eighteen to twenty-two years from now they’ll be pretty much grown up. Live long enough, and you’ll be eighty. Some things just can’t be rushed.

Unfortunately, the prime years for starting things like shade trees and decades-long savings plans are our twenties and thirties. I for one was not thinking long term during that phase of my life. When those years are gone, they’re gone.

On the other hand, you haven’t lost until you give up. Start those retirement savings in your forties, fifties, even sixties, and you’ll have a great deal more than you would have if you’d never started.

The hybrid poplar tree can grow eight feet a year. Plant it where it will shade your air conditioner compressor the first year and your windows in later years.

Adopt an older child and they’ll be in college before you know it.

Eat your vegetables now, and maybe you will get to eighty.

Focus and Goals

Years ago I knew someone who was intensely focussed on the goal of paying off his mortgage very early. This is an admirable goal, but he was so intense about it, his kids were doing without and the family didn’t have any fun.

Goals need to stay in balance. Sure, make advance principal payment on a debt, but also go to the discount movies once in a while.

If you hyper-focus on building up a savings account, there’s a risk you might spend more on the credit cards. If you have to put a bit less in savings to avoid accumulating consumer debt, so be it. Keep the balance.

 

 

Ideals are Different From Goals

In a perfect world, Henry, age forty, might have his house paid off and ten thousand dollars in the bank in case he loses his job. Should these be Henry’s goals?

I think not, because unless he earns twenty bazillion dollars a year, they aren’t attainable in a realistic time frame. If Henry set these as goals, he would soon become discouraged. It’s fine to hold these as ideals, but goals should be attainable.

His short-term goals might be to reduce his expenses enough to make periodic principal pre-payments on his mortgage. To have a little money automatically transferred to his savings account from every paycheck. You have to start at the beginning.

Because people are only human, we need goals we can realistically meet, and meet them soon enough to feel successful.