Financial Health
This week's blog post is taking a brief look at the next pillar of health topic: financial health. This pillar of health is likely one of the more controversial topics as finances create a lot of angst among many people. Finance is a complex topic and my goal for todays blog is to scratch the surface of financial health and to hopefully get you to maybe think about money a little differently. Overtime, my goal is to release a myriad of financial resources to help to increase financial literacy to increase your skill set when it comes to money and utilizing it to improve your life rather than hinder it.
Whether you like it or not, money is part of all our lives. We use it for almost everything we do. Most of us spend a large part of our lives collecting it via our chosen profession. Although I work as a physiotherapist, it is amazing how often problems with money come up with the clients I work with. Many times people can not afford physiotherapy services, but even more common is learning about the personal struggles people have with their finances with the rest of their lives. Rent, car payments, taxes...you name it, I get to hear about it. Many times I see fatal financial mistakes that these clients make that send them further into financial trouble. Although my job as a physiotherapist is to deal primarily with injury, a persons overall health is my true calling and passion. It is from my clients and my own history with dealing with financial hardships that I made it my mission to help whoever would like to be better able to deal with money in their own life. Below are some key principles that will help you improve your financial literacy and financial health.
1. The Solution is NOT more money. How many times have you or someone you know said they just need a little more money and then they would be alright. There are some cases where this is true, but for the large majority of people more money is not going to be the solution to your financial problems. This is a difficult concept to accept but absolutely key to finding financial success regardless of income. Ironically, the less income you have, the more important this mindset is. If you can accept that more money is not an option or a solution (and often it is not a viable option), it allows you to open your mind to other solutions to your money issues (and yes, there are many!).
2. Patch the leaks before you sink: Imagine your in a boat in the middle of the ocean and you start to notice that your sinking. You look around you and your taking on water but you cant find any major leaks. Small leaks can take down any ship. This analogy is a common problem with many people when it comes to money. Most people when they struggle is to look for major leaks that are causing their financial ship to sink. In most cases people identify that they simply need more money as they don't see that it is actually many small financial leaks that are sinking them. I call this phenomenon financial blindspots. These small leaks tend to be from things that we think little about and tend to just purchase without much thought because it is a small amount of money—overtime many small leaks will sink you. This will take us to the next key principle known as opportunity cost.
Beware of little expenses; a small leak will sink a great ship. -Benjamin Franklin
3. Opportunity cost principle: Opportunity cost is the hidden loss of potential of our money when we spend it. In economics it refers to when we spend on one thing we lose the opportunity to spend on other things. This can be expanded to personal finance when we consider spending money versus saving money. Lets take a very basic example of buying a coffee on our way to work each day. Lets assume this coffee costs 2 dollars per visit costing us a total of 10 dollars a week. This equates to 40 dollars a month and 2080 dollars a year. Now if were to take that same money and invest it using a modest stock market return of 7% until retirement (lets say 35 working years) the total cost equates to $314,003.86. That is a lot of lost opportunity with buying a little cup of coffee each day. The crazy thing is that if we calculate the individual cost of each cup of coffee it equates to 301 dollars per cup. I love coffee but there is no way I would ever consider spending that kind of cash on my morning cup of joe.
4. Understand your investment options. This is probably the area that most people struggle the most. It is hard to justify saving money if you do not understand the basic financial tools that may be available to you and your situation. Unfortunately, there are many road blocks that make this more challenging with many “investments” that are there to try and take your hard earned money. We all know or heard of people that won it big with investing in a or b and the same people that lost it all in the same way. Clearing some of the mystery around your investment options is important to build confidence in where you put your money. My goal in the future is to provide resources to educate you on options that are used in Canada. Please let me know in the comments if you are interested and I will get that information out sooner than later!
5. Save, save, save! I think we all know this and ultimately it is key to financial health. It is the core behaviour change that is required to be financially healthy.
There is so much depth when it comes to building financial health and I plan to write much more on the topic in the future. Thanks again for all your support and please let us know if you have any questions or comments!
