A purely financial definition of well-being assumes that emotional wellness will automatically follow economic stability. But this is rarely the case. We’ve all known the fearful penny-pincher who is wealthy, but not well, or the joyful spendthrift whose financial instability could easily lead to ruin. True financial wellness must include both economic and emotional health.
Perspective Over Circumstance
What factors motivate better cash-management, debt-reduction, savings, and delayed-gratification behaviors? Morningstar’s research found that a person’s perspective on time is far more influential than income, age, education or gender when it came to personal finances. A person’s ability to extend his or her time horizon into the future verses only being able to look at short-term planning resulted in significantly increased savings. In other words, life circumstances matter some, but perspective matters more. Having a future-oriented mindset can make the difference between allowing expenses to crowd out one’s income and finding ways to save money.
According to the American Psychological Association, money is the number-one source of stress in U.S. households, regardless of the economic climate. Given that stress leads to health problems, lost productivity, relationship problems, and overall loss in quality of life, it’s clear that the emotional aspects of a person’s financial life are a critical part of their overall financial health. Ideally, economic stability would naturally couple with emotional well-being, since the ability to withstand shocks should foster a sense of peace and satisfaction. However, emotional satisfaction and financial wealth aren’t always linked. By identifying patterns of thought that may sabotage overall financial health, one can make better financial decisions and increase satisfaction and peace of mind.
The Power of Empowerment
In the Morningstar research, people who feel empowered in their financial lives experienced more joy, peace, satisfaction, and pride in their financial lives. The size of impact of empowerment on emotional wellbeing is more than twice as large as that of income.
Therefore, a sense of personal power, not money itself, may be the key to emotional well-being in our financial lives. It is the feeling of and the belief in our power over our lives – not the exercise of it – that is linked to emotional well-being. The solution to feeling disempowered doesn’t necessarily lie in behaving differently, but in a person’s belief that only they can shape their own financial future, that nothing can limit their ability to get ahead, that nothing can stop them, not government, family, social or demographic interference or pressures. By helping themselves think further into the future and to feel more personally empowered in their financial lives, they can change their economic behaviors and emotional well-being over time.
From Empowerment to a Strategic Plan
This is the kind of deep, foundational work that goes beyond simple asset allocation. The first step in building this sense of empowerment is a proper discovery process.
You can learn more about what that entails in our related article, “Beyond the Numbers: The Power of a True Financial Discovery Process.”
As advisors in Westlake Village, we believe a true strategic plan is the foundation for financial wellness. If you’re ready to build a plan that empowers you, the conversation starts here.
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