Results of the 2018 Schwab Modern Wealth Index survey saw a direct connection between a person's approach to money and their overall approach to life.
Top performers on the Wealth Index had a common characteristic: they were all diligent planners.
Having some type of financial plan is the key to achieving your life goals, whatever your definition of wealth.
Most of us have a very good sense of our physical health. But when it comes to our financial health, the picture often gets a bit unclear. This is unfortunate, especially since it's becoming increasingly accepted that financial health and physical health are directly related. And the state of each can say something about your overall sense of well-being.
Past studies such as the 2014 Healthy, Wealthy, and Wise by Timothy Gubler and Lamar Pierce found a direct connection between retirement planning and employee health improvement. A 2016 Gallup survey went so far as to see a correlation between having enough money to do what you want and following healthy eating habits. And the recent results of the 2018 Schwab Modern Wealth Index survey saw an even greater connection between a person's approach to money and their overall approach to life.
The Wealth Index isn't about how much money people have, but rather how well people manage their money. Of the 1,000 participants, those who scored in the top 20 percent—meaning those individuals who were most on top of their finances—also were more likely to be in charge in other important life areas. They exercised regularly, ate healthily, stayed up on current news and events, and made sure they had the facts before making a major decision.
So the next question might be, does financial stability help you take control of other parts of your life or does being in control of your life in general lead to greater financial stability? Which comes first?
Of course, there's really no way to answer this question for certain, but one more thing was made very clear by the Wealth Index survey results: the top performers on the survey were all diligent planners. To me, that's the crux.
Planning is key
Planning, whether it's an exercise plan or a financial plan, is the key to achieving any goal. But while it's relatively easy to join a gym or sign up for yoga classes, when it comes to money, many people think it's just too complicated to even start. I beg to differ.
On the most basic level, creating a financial plan comes down to how you want to use your money and what’s important to you. Think about how much you earn, what you spend and how you spend. What patterns do you see? What changes should you make? Once you have an overall idea, you can get more specific about where to direct your money. For instance, how much for essentials, how much for extras, how much toward debt, how much toward savings? Put it all down on paper, add it up—and you have a direction you can follow.
Ideally, as you get more comfortable with the basics, you'll look at other parts of your financial life, including investing, insurance, retirement saving and estate planning. It doesn't have to be tackled all at once; one builds upon the other. But they're all part of a good financial plan.
Of course, it can get more complicated the more money you have and the more complex your family. As your family and wealth grow, you may want to work with a professional to create a formal financial plan that will guide you towards achieving your personal goals, taking all parts of your financial life into consideration. You might say your plan grows with you.
Why some of us don't plan
It's always easy to come up with reasons for not doing something. When participants in the Modern Wealth Index survey were asked why they didn't have a financial plan, top among the answers was not having enough money to merit one. But the important truth is that planning isn't tied to how much money you have; in fact, it’s quite the reverse. By having a plan, the chances are greater that you'll be able to build more wealth.
Another roadblock is that a lot of people think a financial plan is too expensive. But that's not necessarily true. Financial plans come in all shapes and sizes—from the do-it-yourself approach I mentioned earlier to a one-time conversation with your accountant or an ongoing relationship with an advisor. It doesn't have to be all or nothing and it doesn't have to cost a lot of money. It all depends on what works best for you and your financial situation.
And then there are those who think they'd never be able to stick with a plan. But to me, once you put a financial plan in motion—and especially if you put things like savings and debt payments on automatic—it doesn't take more than a check-in a couple of times a year to make sure you're still on track. That's far easier than getting to the gym every day!
More reasons why we should
Another interesting insight from the survey is that, on average, those who plan tend to be savvier investors overall. They have retirement accounts and brokerage accounts. They have goals and measure their progress against them. They stay on top of their portfolios with an eye to diversification and risk. They pay attention to fees.
It all makes sense. When you plan, you set goals. When you have goals, you work toward them and, consequently, you make better choices that further your success. What's the result? Ideally, you'll feel great—financially, emotionally, and hopefully even physically.
Taking wealth beyond the numbers
Getting back to the idea of an overall sense of well-being, the survey also asked how people define wealth. For the second year in a row, it was interesting and heartening to see that many people equate wealth with living a stress-free life and having loving relationships in addition to having a certain amount of money.
I've always believed that the real value of money is that it gives you the opportunity to live the life you want. It's not an end in itself, but the means to an end. To reach that end, you have to take charge of all aspects of your life. So what's your plan?
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