Financial wellness or financial wellbeing refers to a person’s overall financial health and the absence of money-related stress. It is the result of successfully executing a well thought-out plan of savings, investments, and expenses management.
Financial wellness is an important part of holistic wellbeing that consists of physical, mental, and financial wellness.
If managed well, financial wellness can make the journey of life far less stressful and more enjoyable.
Here are some insights and advice to help you get on the path towards financial wellness for yourself and your loved ones.
Start early
Your focus on planning towards financial wellness should ideally begin the moment you start earning.
The benefits of starting early are tremendous because it then helps you take advantage of the 8th Wonder of the World: “The Power of Compounding”. One can go on and on with explaining the benefits of the power of compounding but it’s never enough.
Benjamin Franklin, the US President whose photograph is printed on US Dollar bills, once said: “Money is of a prolific, generating nature. Money can beget money, and its offspring can beget more.”
Consider this illustration:
Rs 1 lakh invested every year earning a return of 10% compounds (the 10% annual returns also get reinvested) to a value of:
- 35 lakh at the end of 15 years
- 1.08 crore at the end of 25 years
- 2.98 crore at the end of 35 years
So, the earlier you invest, the more massively you benefit.
Save first, spend later
As we start our careers, the excitement and temptation of spending the income on material possessions is very high. But that is precisely what we should control.
Legendary investor and Chairman of Berkshire Hathaway Warren Buffet said: “Save first and spend later.”
Take some time to sit down and calculate how much income and expenses you have and the amount you should be able to save. If you get this right early on, your journey towards financial wellness gets a huge head-start.
It does not matter what age you are or that you are no longer 25 years old. The principle remains the same: “Save first and spend later.”
How and where to invest your savings
The basic objective of investing the money you save is to earn adequate returns that help you beat inflation. This ensures that the purchasing power of your saved corpus remains intact.
The returns earned on investment should be higher than the average inflation experienced in that period. To illustrate, if my saved corpus of Rs 300 enables me to buy one cup of Starbucks coffee today, then even after 15 or 25 or 35 years, the same corpus must continue to afford me at least one cup of Starbucks coffee, if not more.
Hence, we should look at earning inflation-beating returns on our savings and investments.
