When I was growing up, my parents never talked to me or my sister very often about money. We knew we had to save, in order to pay for our flights back to Taiwan to visit family, but we were never privy to the numbers.
We shut off our heat at night in the winter and bundled up. We used fans instead of the air conditioner in the summer. We weren't poor by any stretch, we simply cut back in some unimportant areas so that we could afford the important ones.
Today, if you didn't have the money, you might pay for a flight with a credit card and pay it off over time. My parents saved up for our trips back, which happened about every four years.
That tradition of saving. That tradition of trade offs has helped shape my own relationship with money.
My parents may not have talked to us about money but we learned a tremendous amount by watching what they did. We realized that we could afford the things that were important as long as we ensured we cut the unimportant things to the absolute minimum.
As I thought about what financial health means to me, I realize that it ultimately comes down to control. I want to make smart financial decisions so that I can control the trajectory of my life.
Money is the physical manifestation of a more valuable resource – time. Time is limited and non-renewable. Whether you believe that we all have 1 billion heartbeats or some other number, we can all agree that we won't live forever. By being financially healthy and responsible, you can better manage your own time and control what you work on and where you work on it.
By saving into an emergency fund, your life and your finances aren't blown up with every minor emergency. By avoiding credit card debt, you avoid overpaying for every day expenses. By knowing your credit score before you apply for a loan, you can take steps to improve it and pay far less in your borrowing.
When you aren't financially healthy, you lose control. You are forced to work longer hours to pay down expensive credit card debt. Minor emergencies become major emergencies because you're forced to scramble to come up with the funds to weather them. Small problems compound and it almost feels like the world is conspiring against you.
What are some ways in which we maintain financial health?
The first and most important step is maintaining a money infrastructure that protects us:
- Fully funded emergency fund – to handle those emergencies that fall outside of insurances
- Homeowners, auto, umbrella liability insurance – to protect our home and cars, plus umbrella liability for anything that exceeds those coverages
- Plan for near-term funding needs – I struggled to name this item but these are savings accounts set up for things we may need in the near future. For example, we knew that our hot water heater was near the end of its useful life. To prepare, we starting saving up for it and we requested quotes from nearby companies. When it does fail, we'll have the quotes ready and the money prepared.
The Center for Financial Services Innovation, who is coordinating a #FinHealthMatters campaign, states that “Households that plan ahead for large, irregular expenses are 10 times as likely to be in the financially healthy segments than those that do not plan ahead.” We aim to be in the camp that is able to plan and prepare for every irregular expenses.
What does Financial Health mean to you?