Cultivating a healthy relationship with money is the foundation of a rich and happy life. Just like any other relationship, for your money to blossom, it needs attention and care. You don’t want to stifle it with worry and fear, but you also don’t want to be careless. You need to get to understand it, treasure it, and not be afraid to let it go. If you strike the right balance, it will always be there for you.
The first step to understanding money is to figure out how much you need to live the way you want. You can spend your whole life pursuing more money, or you can figure out what it takes to live and be happy. Money is a tool to fund your life – when you think about money as a tool, it’s easier to plan.
How much do you need to meet your necessary expenses?
The mortgage, the rent, your other fixed bills, your life & health insurance, your kid’s education? How much is an important number because you if you can’t afford your basic lifestyle, life becomes one big money worry.
The next hard step: Regular saving
This trips many people up. It usually involves delayed gratification, and we don’t like that. It also involves investing, which can seem scary and complicated. But we must save for the things or experiences we want soon and in the future, and we must invest to prevent our money from losing value due to inflation.
Retirement is the most daunting savings need of all because it involves big numbers and many assumptions – assumptions on our longevity, health, returns on investment, inflation rates, etc. For most of us, our CPF is the only source of income we will have in retirement besides our savings. For this reason, saving at least 10% of take-home income each year (or more if you start late) is critical.
After you understand how much money you need to meet your emergency fund, your necessary expenses and your retirement savings, then you can focus on what else you want to create a rich and happy life. A healthy relationship with money means knowing that you can’t have everything. Instead, you figure out what in life brings you the most joy and satisfaction, and you prioritize those things.
You will know you have achieved a healthy relationship with money when you worry less about it and start feeling good about how you are spending and saving it. Get started working on this most important relationship now for a happier future.