Friday, October 6, 2017
The 4 Building Blocks of Financial Health
When it comes to financial health, there are as many opinions as there are people you ask. Many people talk about the hot new stock or even leveraging to make money. Some people even think using your home as a bank account is a good idea. While there may be many opinions on what you should do to achieve financial health certain things remain constant throughout. These are the bedrock foundations to any successful financial plan. I would describe financial health as a chart that is slowly but surely going up. The growth of wealth corresponding with the elimination of debt throughout life. Making sound moves at the right times all with an eye for the future. Over time, those within the industry have settled on 4 areas that allow for you to flourish instead of flounder. These 4 areas, if addressed, allow you to live life the way you wish, weather any storm, and achieve the ultimate goal, retirement. In this post, I will describe the four building blocks of financial health and show you how they can help you achieve financial freedom.
1) Liquidity
I have written whole posts on how important being liquid is. You have to have the ability to weather small financial burdens. This is what is known as the Emergency Fund. It is so important I dedicated a whole week to it last week. Your emergency fund should have at least 3-6 months living expenses in it so you can handle life’s curveballs. I would recommend going a step further and have 3-6 month’s salary instead of living expenses. Suze Orman recommends this as well because it will allow you to live your normal life should you lose your job or become ill. With those extra funds, you could also cut down on spending if needed and stretch the money out a bit longer. I keep my emergency fund in my bank account but I also utilize the Tax-Free Savings Account (TFSA). In my opinion everyone, no matter how young or old, should have a TFSA. The TFSA is the sexiest investment vehicle I have ever seen because as the name states, no taxes are paid. You don’t pay taxes on growth or when you withdrawal. That’s a beautiful thing, so focus on liquidity.
The Importance of Liquidity and Liquid Assets – Joshua Kennon
2) Health Coverage and Benefits
During the course of this week, we spoke a lot about how health can put a damper on your finances as well as your life. This is why protecting your paycheque with health benefits is huge. I personally need health coverage to cover prescription costs for a specialty drug that helps me with Ulcerative Colitis. That drug cost is thousands of dollars every month. The problem is if I didn’t have that drug I would not be able to work and would be bedridden. With the drug, I can perform at work and live my life. Securing coverage was essential for me to save for the future and live any sort of life in the meantime. This becomes especially important if you have a family to support who relies on your paycheck. You also have to have some form of disability insurance to make sure that if you get hurt you will still have an income coming in. Not doing so would result in you relying on Government Benefits which may only provide you with half your income. Could you survive on half your income? I didn’t think so. Consider any possibility when thinking of Health Coverage as it is bad health that is the number one factor in people not realizing their financial goals.
Not Covered for Life’s Disasters – Paycheque Protection
3) Security at Death
This is the least fun aspect of financial health. Thinking about death is never enjoyable but I let me be totally honest with you. Almost every young person I have helped secure Life Insurance says this right after it’s done: “Wow, I feel like such an adult!” That’s because it is true, you have become an adult when you begin to realize your own mortality. I know that is exactly how I felt when I bought Life Insurance. I know that the people I love will be taken care of if I pass on. Once again, this becomes especially important if you have a family. Think of it this way: If you make 50K a year, that equals 1.75 Million dollars from ages 30-65. Who else is counting on you to make that money? What were you planning on doing with that money? I am certain that there is at least one other person in your life that relies on you in some form or another. I am also certain that as you grow older that list of people who rely on you will only grow larger. Your life is worth something, a lot more than you think. Make sure it’s not only worth a GoFundMe page.
Dying without Life Insurance Meant Learning to Live Without – John Chick
4) Retirement
When I speak to people about retirement it seems like some far-off galaxy to most. Like some distant world that you may never venture to. What many don’t realize is that saving for retirement is not only important, it is essential to good financial health. The reason is simple: Retirement might not end up being what you are saving for. Yes, more than likely these funds will be used on the day you choose to hang up the work boots. What if that day comes at the age of 55 instead of 65? In the world we live in, you want to be able to weather any storm. None of us are immune to corporate takeovers or companies who maintain quarterly profits by laying off workers. As technology gets more and more advanced it is crucial to future-proof yourself by saving money for long-term goals. When the company you work for offers you a package for early retirement, will you take that fat cheque and start your own home business or move up to the cottage? Or will you roll the dice and see if you can make it through another round of layoffs because you haven’t saved a cent for retirement? Saving money for the future provides flexibility and strength. Money may not buy you happiness, but it certainly buys you options.
Nearly half of Canadians forced to retire earlier than planned – The Globe and Mail
These 4 areas are the building blocks of any solid financial plan. Take care of these and every situation in life becomes that much more manageable.
Liquidity – Protects Your Lifestyle
Health Coverage – Protects Your Paycheck
Security at Death – Protects Your Loved Ones
Retirement Savings – Protects Your Future
They all go hand in hand in making sure you are set up for success rather than rolling the dice. This isn’t a process you handle in one day. It could take years to secure each aspect of the 4 building blocks of Financial Health. The key is to be aware of them and work towards taking care of each of them. Start with what you can change right away and then focus on slowly changing the tougher ones. It may require a little sacrifice and dedication, but putting in that effort will allow for you to roll with life’s punches instead of getting knocked out in the first round.
Thanks for reading my post today as we wrapped up financial health week at Budget Boss. Don’t forget to tune in this afternoon when we do our weekly live recap of the week with SixFive Interactive from Innovation Works in beautiful Downtown London, Canada. Shoot me a message at joe@budgetboss.ca if you want to get started on securing your building blocks of financial health. Happy Thanksgiving and have a great weekend!
“The secret to happiness is freedom… And the secret to freedom is courage.” – Thucydides
Email – joe@budgetboss.ca
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