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Whenever I meet with a new client, I always ask what “personal financial well-being” means to them. Without this information, it’s impossible for me to set the client on their best short- and long-term financial path.
If you haven’t done this already, take a moment now to write down a definition of financial well-being for yourself. Ask yourself, what would your life look like or feel like if you were financially well-off? Specifically, how will you know when you have reached your definition of financial security? How would you complete this sentence: I will know I am financially secure when _________________.
If you’re like most people, there are several common elements that are used when defining personal financial well-being. Not too long ago, the Consumer Financial Protection Bureau (CFPB) conducted a nation-wide survey asking consumers what they had to say about financial well-being and what it means to them. The results of the CFPB survey revealed that when people think about their own financial well-being, four main elements come to light:
- feeling in control
- having the capacity to absorb a financial shock,
- being on track to meet goals, and
- having the flexibility to make choices.
Let’s review these elements a bit further to see where you fit (or where you’d like to fit).
- Feeling in control
You don’t have to be a rocket scientist to know that people who experience high levels of financial well-being are those who feel in control of their day-to-day and month-to-month finances. They are able to cover their expenses and pay their bills on time, and typically do not worry about having enough money to get by. What brings them this feeling of well-being is not just about having money, but about successfully managing it.
- Capacity to absorb a financial shock
Financial security (especially for the future) is also felt by those individuals who have a safety net, such as a savings account or insurance policy to help ease or stop the shock of a costly car accident or a temporary job loss from turning into a longer-lasting financial setback. Having a safety net is also a result of how money is managed.
- On track to meet goals
Individuals who are on track to meet their financial goals, whether or not they have a formal financial plan, also report a higher sense of financial well-being. Setting goals that are important to you and working toward those goals moves you toward financial freedom for the future.
- Flexibility to make choices
Having the financial flexibility to do what they value and what makes them happy is the fourth element of personal financial well-being. Having financial freedom to make choices allows us to enjoy life, whether it’s taking a family vacation, going out to eat, or working less to spend more time with family.
Focusing on your own personal financial well-being lets you visualize your path to financial security, but the heavy-lifting is on you and the actions you take now.
Helping clients Implement strategies and systems to realize their own sense of financial well-being is our strength. If you would like to experience financial well-being, now’s the best time to contact Fahmy & Associates at 703-760-4630. We are here to help.
— Ken Fahmy
CERTIFIED FINANCIAL PLANNER® CHARTERED LIFE UNDERWRITER CHARTERED FINANCIAL CONSULTANT