Everybody wants their family to be happy, healthy and wealthy. Of course, if you are not born into wealth, you need to grow it with understanding, planning and lots of practice. In other words, increase your “family wealth fitness”.
Looking at how we build physical fitness is a great way to understand wealth creation. To be healthy, we need to be physically fit, and to be wealthy, we need to be financially fit.
Just like physical fitness sits on a scale, wealth fitness sits on a scale. The first stage in physical fitness is to have enough energy and strength to do your regular day-to-day activities and to enjoy your body. The second stage is to build enough stamina to handle sickness and unusual physical challenges well.
Financial fitness is the same. First, you build financial stability, so you can have what you want, manage the day-to-day financial needs easily and enjoy your life. Then, you can build a money buffer large enough to cover large purchases and unplanned expresses.
To increase your physical fitness, you exercise your muscles and build your body’s endurance, flexibility, strength and ability to handle more blood flow and recover quicker.
To increase your family wealth fitness, you work, save, invest, buy insurance and build your financial system’s endurance, flexibility and ability to handle more of what life might throw at you.
Treating wealth like you treat your physical fitness is easy.
Because there are millions of people around the world who understand fitness very well and dedicate hours to gaining muscles and energy. If they did the same with their money, they would be millionaires.
How to measure your physical fitness
The simplest definition of physical fitness is the speed it takes your heart to recover from intense activity. If you want to check your level of fitness, you work out hard, increase your heart rate and then check how long it takes you to go back to resting heart rate.
You can increase your fitness by gradually increasing the intensity, duration and/or frequency of your exercise. This shortens the time it takes you to recover. The faster you recover, the fitter you are. If it takes you too long to get back to normal heart rate, you are not fit (check yourself).
How to measure your family wealth fitness
Wealth fitness is the same. It’s how quickly you can overcome a financial challenge and how quickly you can recover from it. You increase your ability to earn, your savings, your spending and the faster it takes you to go back to a comfortable place, the fitter you are financially.
In one of his workshops, Anthony Robbins said
We measure wealth as the number of days, weeks, months or years we can live without having to work
I liked his definition, because I had plenty of money since I was a student, but I never knew if that meant I was wealthy. Using this definition, I realized that wealth sits on a scale. You can be 1-week wealthy, 1-month wealthy or 5-year wealthy. Better yet, if you have enough money to last until you are 100 years old, you can retire.
In fitness, we increase the heart rate and measure how fast we go back to normal heart rate. In wealth fitness, we increase our lifestyle, our earnings and our spending and measure how fast we go back to normal lifestyle.
In physical fitness, we introduce our body to physical challenges. When we are fitter, we recover faster if we get sick, if we have an injury, if we stop exercising because we are going on a holiday or there is something pressing that needs our undivided attention, if we want to climb Mount Everest or run a marathon.
Some of the challenges will be things we want and some of them will be forced on us. If we have a physical buffer, we’ll recover faster.
Financial fitness, or family wealth fitness, is the same.
Facing health issues
The first type of family wealth crisis everyone faces from time to time is caused by health issues. It means you can’t work. Some people can’t afford to stop going to work and that immediately affect their bottom line.
If the bread winners in your family work for other people, they have limited sick days. If the bread winners in your family run their own business, they have even fewer sick days to make up for lost income.
When you are financially fit (have a big enough buffer), you can afford more sick days.
This becomes a real issue if your health problem is big and you have to stay away from work for a long time. If you have a big buffer, good health insurance, income protection insurance, some passive income and/or investments, or your business can run without you, you will recover financially and be able to maintain your regular lifestyle.
On the other hand, if you don’t have big buffer, a serious illness or injury might become a crisis, which means it’ll take you a long time to go back to normal life.
The second type of financial crisis is caused by holidays. We all need holidays (vacations) to recover. If we work for others, we need time off, and if we work for ourselves, we also need time off.
Some people “save” their holiday time and do not take it throughout the year, so they can afford to take a long break for a big travel adventure. This can take a financial toll, because the holiday itself is an expense most families struggle to afford.
If you are self-employed and your business cannot run without you, this is even harder, because you know that every day you are away is a day you are not earning money.
Your wealth fitness is good when you can go on vacation and recover financially quickly. Wealthy families have more holidays. They plan them into their timetable and into their budget and their holidays do not lower their family wealth fitness.
If you have big buffers, or you put aside money for vacations, you are fit financially and can take longer or more frequent vacations without affecting your usual lifestyle (your resting financial heart rate).
Making big purchases
The third type of family wealth “hit” you need to recover from is big purchases. Every big purchase puts pressure on the system. Your fitness is determined by how fast you recover from this purchase.
If you save the money in advance, and then make the purchase, you are very fit, because the day after the purchase will look exactly like the day before it. Any purchase you make with money you already have means you are fit. When you make such purchases, usually, your real heart rate will increase the day you make the purchase, but life will remain normal.
Saving money in advance is great for most big purchases, but not for all. Some things are just too expensive to buy with savings and require a personal loan. Please note that any unpaid debt on your credit card is a loan, and a very expensive one.
Before you take out a loan to buy something big, ask yourself, “Will this purchase make me more money than the cost of the loan?”
If the answer is “Yes”, like when you buy tools of the trade, a commercial vehicle, a business or an investment property, borrowing money can make you fitter than not.
If the answer is “No”, like when you buy a sports car you can’t afford, borrowing can add to the pressure in your life for a long time. You can’t go back to your regular lifestyle until you finish paying off that loan.
What about buying a home?
Most people cannot buy a home outright with money they’ve saved, so they need a loan. This is a good thing to do, because everybody has to live somewhere and paying off a home loan is better than paying rent.
Every time you make a loan payment, some of the money goes into your own pocket. When you pay rent, all your money goes to the landlord. The part of your home that you own is part of your financial buffer, because if you ever need the money, you can keep this money after selling your home.
Dealing with relationship breakdown
The fourth type of financial crisis is due to relationship breakdown. Sadly, when couples separate or divorce, it becomes much harder to keep the same lifestyle. Suddenly, one of them needs to buy or rent another home. When children are involved, both partners need to buy double of every item they have – fridge, beds, table, living room furniture, etc.
Only very financially-fit couples can lead a comfortable lifestyle after a divorce. All the rest find it hard to recover.
The irony of some relationship breakdowns is that the partners have conflicts about finances when they are together, and after they separate, both of them are in a worse position. It can get even harder when separated couples find new partners and need to support another person, and sometimes more children.
Relationship breakdown is a massive issue and takes serious financial fitness to overcome. Therefore, it’s best to avoid it by keeping your relationship strong and handling your finances as partners.
The fifth, and a hard financial difficulty, is due to mistakes. We are all human and we make mistakes. Some people make big mistakes.
One of the biggest mistakes people make is putting all their eggs in one basket. When something goes wrong, everything goes wrong.
This is why we have to have alternatives for everything and never, never invest all our money into one thing, no matter how promising it is.
I have been to countless seminars, where people shared how they lost everything they had and slept in their car with $15 in their wallet. Never let it get to the point where you will collapse financially if something goes wrong. Always have something else ready for a rainy day and use it only in an emergency.
Some people think that being employed will guarantee their income. It won’t. Nothing in life is guaranteed, except death. Wherever your money is, never touch your bread and butter and have buffers for a rainy days, and then for another rainy day, just to be on the safe side.
If you put your money in shares and another September 11 happens, it might hit you hard, but it isn’t your mistake. If some of your buffer money is saved or invested elsewhere, you will overcome. You just need to wait for the market to recover.
But if those shares are everything you have, that’s your mistake and recovery will be a lot harder.
To minimize mistakes, don’t put all your money in one basket and create a lifestyle based only on 90% of your earnings. This needs to cover the basics, holidays and investment and leave 10% for unplanned events. Why? Because that’s life. Unplanned events happen all the time.
Some people say that you need to have a total of six streams of income. Work, business, shares, cash (savings), property, retirement fund, hobby income and royalties are just some examples of streams of income. So don’t depend solely on one source.
Again, when you have only one source and not much buffer, one mistake will take you a long time to fix and return to normal “heart rate”.
How big is your money buffer?
The simple rule of wealth fitness is to have a buffer and a system in place to make sure you recover quickly and go back to normal lifestyle, whatever your normal lifestyle is.
So, if you want to have a happy, healthy, wealthy family, take care of your wealth fitness and have many buffers to survive any heartache.