Financial wellness (or financial well-being) refers to a person’s overall financial health and the absence of money-related stress. It’s the result of successful income management which assures physical, mental, and financial wellness.
Financial wellness is critical for all people because it can help your quality of life. Stress-related to money can affect every aspect of your life. Your personal and professional productivity could potentially suffer due to financial worry.
What does it mean to have a general financial culture to guide us when it comes to making small and big financial decisions throughout our lives? A method to measure adult financial literacy, which has been adopted at the international level, investigates three things:
- knowledge of basic economic concepts,
- smart financial behavior (for example, the habit of covering current expenditure without falling into debt), and
- that of making long-term financial decisions (for example, the decision to save). The verb TO SAVE comes from Medieval Latin ‘salvare’, meaning ‘to make safe, secure’. What is not spent today can save you in the future.
A – Knowledge of basic economic concepts
Knowing the basics of finance is a valuable skill for everyone. MPW helps you with this. But the invitation is to go further, strengthening your knowledge whenever you have the opportunity. You should be fully aware of everything pertaining to your investments and how they develop. Even more so, if you don’t follow them personally and rely on someone you trust. For this reason, we suggest that you have these issues in mind:
1 – How to strengthen your financial training
2 – How it works and what are the advantages of compound interest
3 – Investing in the stock market is the most advantageous method to grow capital over time
4 – How to avoid the risks of financial scams
5 – How to predict retirement
On these issues, you can find essential information on institutional sites such as
https://www.investor.gov/introduction-investing
If you want to learn more, on the web, you can find free courses of any level
B – Smart financial behavior
The habit of covering current expenditure without falling into debt è sicuramente la strategia vinente, tuttavia ci sono aspetti controversi, come il mutuo per l’acquisto della casa di abitazioe, attorno ai quali c’è molta discussione. Rimandiamo ad un altro documento l’approfondimento di questo tema.
C – Long-term financial decisions
A significant part of financial well-being depends on how comfortable I am today for the future on 3 issues:
- the possibility of economically coping with sudden negative events
- the security of being able to have adequate resources at retirement age for the growing expenses necessary to maintain the quality of life at a time when there is a need for increasing assistance.
- if I have children, their accompaniment towards an independent life (for example ensuring them the possibility of concluding their studies)
All this is solved by setting aside money first and then working time.
The savings advantage
To save you need to be able to save. It is the basic condition and this depends more on the strategy adopted than on availability. Whatever the income, even if very small, as a mental habit it is good to set aside at least 5% for the future, at least as a reserve against sudden events, negative economically. As you increase your income, this percentage will increase until it becomes more prevalent than your monthly routine expenses.
In the event that what has been set aside is inadequate to the objectives, it is necessary to identify how to be able to activate a second revenue channel. There are two possibilities of new income: active and passive:
- Active: the result of your work where you dedicate time and work
- Passive: the result of your organizational activity, which means that your time and work are not needed. Examples:
- The cashback – To have systematically having discounts on what you buy online to set aside for your future
- The forced saving, that is to say, that I appoint a third party authorized to withdraw from the current account systematically, irrelevant sums (cents?) But which together can constitute bricks for the future
- The statistic stock trading – The statistical investments in the stock market with limited risk can generate a continuous flow of small amounts to be set aside
- etc.
The time advantage
The time multiplier effect is mathematical. It is better to know its dynamics well to exploit it well in your favor.
The most important lever that you can turn in your favor over time is continuity. That is to say that the results consistent with one’s goals are never the result of exceptionalism (except when someone wins a lottery), but of the routine of the day after day, which has continued for years. Even if they were only cents if accumulated for years, left to reproduce, they will be able to give seemingly incredible results. Time is a precious ally for anyone who is worrying about when he will be forced to live on the income.
The time-saving combination
But how can I be sure that my waiver today, or is lost? How can I send my savings today into the future?
Warren Buffett describes compound interest as the only way to make your money worth more and more. It consists of making time work and reinvesting month after month so that the income produced is added to the capital, increasing the amount invested each time. The longer the time, the more it works in your favor, so the sooner you start, the more the small amounts you pay, produce great results.
Just as a snowball slowly accumulates more and more mass the longer it rolls, so to does your fund grow in the capital the longer it operates.
Just like when using a small 1hp engine to start a powerful 500hp one.
The key answers to ensure your financial well-being
Always have the answers to the following questions clear:
- Why I should invest (see on the web)
- Why do I have to try to multiply?
- How do I best invest?
- Why should I have a far more expert and authorized person than me (advisor)?
- How can I fully understand what he is saying to me and then check that it is my interest?
- Why do I need to have basic financial training and then try to improve it?
Periodically it is advisable to propose them again because they strengthen the propensity to enhance the conditions that ensure well-being.