If you want to know what it means to be financially sound and how it can help you, this is the right article to read.
It reveals exactly what financially sound means and as many as 10 tips to help you achieve this.
Why Become Financially Sound?
Being sound as it relates to us as individuals, has a lot of implications.
How often have we watched a murder mystery and when the reading of the will starts amongst all of the potential suspects, it begins with I, so-and-so, being of a sound mind, and then the rest of the will is read out loud.
The suspense builds.
Additionally, there are sound waves, sound barriers, Sounds of Silence, sounding boards, etc.
Also, sound, as it relates to health, has implications when it comes to having a sound body.
This means that the individual’s physical being is not experiencing any illnesses, and is healthy. Therefore, the expression having a sound body.
Also, sound has implications when it comes to our finances.
Therefore, let us look at what it means to be financially sound and then discuss 10 tips that may help in achieving that soundness.
In years gone by before, before there was cellular service and unlimited long-distance calling, we used to have a process. The intent was to let our loved ones know that we had made it home safely from our trip.
Because long-distance cost money, the plan was to let people know we had made it home okay by calling their number and letting it ring twice, and then hanging up.
That was our way of telling people that we had made it home safe and sound.
Financially Sound Meaning and Definition
Being financially sound is an expression that reflects an individual’s financial health.
Specifically, it means that a person’s financial situation is robust and healthy. This means that more money is coming in on the income side of the ledger rather than more money going out on the expense side.
Additionally, being financially sound means that one has monies in reserve to weather any potential financial storms that may appear on the horizon.
Some of those storms could include emergencies, any health-related issues, planning for one’s golden years, etc.
Being financially sound is not about how much you make but it is what you can keep.
For example, an individual may make over $100,000 a year but if they have nothing to show for it, this would not be defined as being financially sound.
Additionally, financially sound can refer to decisions made by an individual as it relates to their finances.
As individuals, spending decisions that are not sound are made irrationally. Often one’s spending can be spontaneous or compulsive.
These types of expenditures are not sound financial decisions. Consequently, not making sound financial decisions leads to disarray or an individual’s financial situation is unsound or in chaos.
15 Tips to Help You Become Financially Sound
1. Have Sound Planning
Being financially sound starts with sound planning.
Illustratively would be if the foundation of a home is not sound or solid or built well, then any structure that is placed upon that foundation becomes unstable as well.
So it is with our finances.
Therefore, the best way to achieve financial soundness is, to begin with, a budget.
The budget is the financial framework that allows the individual to spend, plan, and achieve their financial goals.
Budget 101 would reflect a two-column worksheet. On one side of the worksheet would be all of the income coming into the household and the other column would be all of the expenses.
It is important to list in detail what each of these items are.
Consequently, on the income side of the ledger would be any salaries, retirement benefits, extra payment for jobs, etc.
On the expense side of the ledger would be a listing of all the household expenses. A sampling of those expenses could include housing costs, insurance, food, utilities, entertainment, etc., etc.
Also, on the expense side of the ledger should be monies set aside for savings, investments, or retirement.
This would be a sound budget that would be a plan that will help the individual to achieve financial soundness.
2. Have a Sound Nest Egg
Any experienced individual will realize that even the best-laid plans can go awry.
This is especially true when it comes to one’s budget.
It doesn’t take much to destroy a budget. A breakdown of a major appliance, needed car repair, medical bill, etc. will blow a large hole in one’s budget.
To counter this, it is important to have set up a nest egg or a contingency fund.
Many personal financial gurus suggest that an individual should have set aside 3 to 6 months of money. This cache would cover living expenses.
This money should be kept in some sort of investment vehicle but one in which access to the money can easily be obtained.
Such recommendations could include a high-interest savings account, money market account, etc.
3. Sound of Silence – Indebtedness
As part of being financially sound, it is important, as it is to one’s health, to not have any negative aspects associated with that soundness
A significantly detrimental factor that can shatter the soundness of one’s financial situation is the carrying of needless debt.
This debt would be defined as balances carried over month to month with one’s credit card. The reality is that credit cards charge back to the customer a percentage of the money loaned to you.
Therefore, it is important to pay down one’s credit card debt. Rather than giving those interest payments to the credit card company, set that money aside for one’s personal use and future financial soundness.
4. Have Sound Boundaries
A pithy statement that was related to me during my later business years was in regards to spending.
The statement that was expressed to me was if it’s not in the bank and if it’s not in the budget then you can’t spend it.
Although I confess, that I have not held to this all the time, it certainly is a powerful reminder of not spending what you don’t have.
You mustn’t spend beyond your means but main control keeping control of your finances and your financial situation.
5. Have a Sound Investing
As part of the financial soundness plan, it is important to make sound business investment decisions.
There are several investment opportunities that an individual can invest their hard-earned money in. Some of these investments can be very speculative while some have a less or moderate risk to that investment process.
Many factors need to be considered when making investments.
For example, if considering investing in the stock market it is important that one analyze how many years that investment will remain in the stock market.
This is because sometimes the stock market can be volatile. Therefore, if you need the money in five years and there is a significant downturn in the economy and consequently in the stock market, you may lose some of your investment money.
However, if you have 10 years to keep that money invested in the stock market that may be a better decision. A 10-year span of investment could weather the ebbs and flows.
Therefore, it is important to be a sound investor which means that an individual should diversify their investments over many investment vehicles.
Some of those investment vehicles could include bonds, index funds, stock market, precious metals, or other alternate means of investing.
6. Have a Sound Insurance
Chances are to be convinced to take an umbrella on a sunny day would be a difficult argument to make to an individual.
However, carrying an umbrella at all times may be a wise choice if the weather may change at any given moment.
Insurance is like an umbrella. Not often do you need to open employ it and shield yourself from the rain or other elements in the environment.
However, when the rain does come then the umbrella is there to shield the individual from the rain.
Insurance works the same way. Therefore, a sound individual who wishes to have financial soundness in their lives will ensure that they are adequately insured when the rains of life come.
7. Have a Sound Net Worth
There are several ways to evaluate your worthiness as it relates to credit.
One of the prime indicators that credit cards and loan companies rely on is an individual’s credit score and credit report.
A credit score is a formula used to evaluate one’s ability to manage credit. It is formulated by using many factors.
Some of those factors include the number of years that an individual has utilized credit, information about inquiries on one’s credit, balances held, any bankruptcies, etc.
A lot of credence is given by lending institutions on this score.
However, lost in the shuffle, is another and possibly more valuable report for us as individuals?
This report or listing of an individual’s total liabilities and assets is called their net worth.
It is simply a compilation of everything that the individual has and owns. This total is offset against all of their credit card indebtedness, outstanding mortgages, balances on cars being purchased, etc.
The difference between the assets and the liabilities is one’s net worth.
This is an important exercise because it gives a true picture of where the individual stands.
The power of this financial picture is not about the total amount of assets but the difference when the liabilities are subtracted from the assets.
8. Have a Sound Mind
None of us is going to live forever. Therefore, it is important to think about one’s future and their family’s future by making one’s wishes known and providing for them through will and estate documents.
This includes having your lawyer draft up powers of attorney, living wills, financial power of attorney, etc.
It is important that through these documents and in personal conversations with the family to let everyone know what the intentions are.
Often this is a difficult conversation to have but is one that is of sound intent and motivation.
9. Have a Sound Piloting
A good way to attain one’s financial savings goal is to put the plan on autopilot or automatic.
This can be accomplished by requesting one’s employer to deposit their check into two separate accounts.
A percentage can go into the regular bank account while another portion can go into a savings vehicle.
Or, an automatic payment can be set up through one’s financial institution that on a set date, a set amount is automatically transferred to that savings account.
This prevents, as much as possible, from one changing their mind. The automatic contributions make it so the individual doesn’t need to worry or think about it.
It just happens.
10. Have a Sound Education
As individuals, it’s always important that we strive and continue to increase our knowledge. This is particularly true when it comes to our finances.
By looking at various YouTube presentations or reading articles online or investing in personal finance books, we can be refreshed in the thinking that we already know to be true.
Additionally, we can learn new things and possibly implement them as part of our strategy to be financially sound.
Financially Sound FAQs
How Do I Know I’m Financially Sound?
One might be financially sound or on their way if:
If they have more income rather than expenses at the end of the month.
If they have up to six months saved for an emergency to cover six months of living expenses.
If they are saving consistently towards their retirement.
Why Is Being Financially Sound Important?
Being financially sound is important because every aspect of our lives is either affected or touched by our finances.
If we are financially stressed, then that spills over into our physical and mental health and creates stress which can lead to other physical problems and ailments.
Worry about finances can also adversely affect relationships and specifically marriages.
You Can Be Financially Sound!
Being financially sound is within everybody’s reach. It doesn’t matter if one has significant debt or no debt at all.
It doesn’t matter if one has a large quantity of money coming into the household or not as much as they like.
The reality is that we are not bound, or our circumstances don’t dictate to us what we can do financially or not.
It is important to remember that yesterday along with any bad decisions are exactly that they are in the past.
Fortunately, we have today and today can be the start of becoming financially sound in our financial dealings and decisions.
It’s time to make that phone call.
By following these 10 tips and more, you are reaching your home destination. Each of these tips can be likened to mile markers as we arrive closer and closer to our financial goals.
It’s time to pick up the phone let it ring twice and let everybody know that you’re safe and sound.