Is being financially successful the same as being financially healthy?

By John Atkins

In the popular imagination,“financial success” often equates with extravagance: exotic vacations, expensive cars, and days spent luxuriating in ease and comfort. We call to mind images of famous actors, athletes, tech wunderkinds and Wall Street wizards when we think of what it means to be “successful.”

The reality of financial success is quite different, and reveals that while it’s possible to be both financially healthy and rich, gobs of money do not guarantee long-term security. In fact, more than half of the millionaires in the United States are over the age of 55, a fact that suggests prudence and good money habits go hand-in-hand with wealth.

While it’s possible to get rich quick, the only way to persistent wealth comes through healthy financial practices. To understand the differences between financial health and financial success, you should first define what each means. From there, you can consider what financial success means to you — and how best to improve the overall health of your finances.

Define Your Terms

Rosemary Frank, a registered investment adviser and certified fraud examiner, summarizes the difference between financial success and health:

“Financial success is usually understood to mean that you make a lot of money. Financial health means you are able to retain that money, make it grow, and provide for a financially worry-free future.”

This common understanding of financial success — to cash a big paycheck — can be broadly understood as a definition of wealth. Financial success and wealth can also describe the attainment of certain goals, such as debt reduction, savings or overall net worth, and thus more closely align with the idea of “financial health.”

This notion of financial health does not necessarily preclude anyone, regardless of financial demographic. Raw wealth aside, financial health describes the overall state of a person’s finances. This can include multiple dimensions but generally assumes that a financially healthy individual spends less than he or she makes and sets aside money for the future.

Pitfalls for the Financially Successful

The financially successful can easily fall into traps that damage long-term financial health.

“There are plenty of financially successful people who are not financially healthy,” says Gage DeYoung, founder of Prudent Wealthcare. “Many successful people fly by the seat of their pants and spend more than they make, all while believing that the gravy train will continue to roll.”

Dependence on a heavy flow of income is the most common trap of the successful. Regardless of a salary’s size, it can cease at a moment’s notice, whether through an industry downturn, lay-off, or ill health. To translate success into stability, the wealthy should diversify income amongst several sources.

The trappings of wealth also present an illusory satisfaction for many successful people. Luxury goods present the worst kind of investment and begin to lose value immediately upon purchase. It’s natural to want to display success, but extravagance can undermine the very success that made it possible.

The Keys to Financial Health

Financially healthy habits benefit everyone, whether financially successful or not. For the wealthy, they help assure that a high standard of living can continue while the not-so-wealthy can achieve freedom and the assurance of a brighter future.

“The beautiful thing about financially healthy habits is that you can have them before you become financially successful,” says Andrew R. Avellan, founding partner of the Philadelphia Wealth Management Co. “And regardless of how successful you become, it means nothing without financially healthy habits.”

A sound strategy for debt represents one key habit of the financially healthy. This involves not only the payment of debt but the establishment of goals to remove debt in a timely manner. Financially healthy people also save or invest a significant portion of their income. Ten percent represents the general rule of thumb though you must remain careful to choose your investments wisely.

Wise investments bespeak the final hallmark of financial health: awareness and control. If you know where your money’s at and where it’s going, you can set goals, reign in spending, and take charge of your finances for the future. More than anything else, control over your money — and freedom from financial worry — represents true financial success.

About the Author

John Atkins was the community manager for Self Lender.

Written on March 15, 2016

Self Lender is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@selflender.com.

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