A lot is written on the symptoms and consequences of poor financial health. These days we are surrounded by news stories of financial disease in individuals, corporations, and nations. Financial instability seems to be the new normal.

A recent survey done by Jean Chatzky found that 15% of US citizens are insolvent and 55% live month-to-month. Only 27% are “financially sound.” Just 3% are considered wealthy, which is defined as having a net worth of over $500,000. This is a very low threshold; I’ve yet to talk to anyone worth $500,000 who considers themselves wealthy.

The signs of personal financial disease are easy to spot: spending more than you make, not having one year of living expenses saved, not funding your retirement plan, no (or negative) net worth, a history of poor money decisions, and chronic emotional distress around money.

What we don’t hear much about are examples of financial wellness. I’ve asked a number of people what financial wellness looks like. I’ve received a wide array of answers, but the most common goes something like, “I’m not sure I can define it but I know it when I see it!”

I Googled “definition of financial wellness” and got some interesting responses. One site, thegreenlivingexpert.com, defines financial wellness as “having a clear understanding of your financial situation.”

I know a number of individuals meeting that definition who are as far from financial wellness as South Dakota is from China. Having a clear understanding that, “Oh, I’m so deep in debt I’ll never be able to get out,” is not exactly financial wellness.

Other definitions of financial wellness include:
• Not having to worry about finances
• Having a written financial plan
• Having your finances in place to achieve your financial goals while adhering to basic principles of financial planning
• When you’re not stressed about money
• Living within your means and having debts and obligations that you can meet
• No longer having to worry about retirement
• To be in such a financial situation that your hopes, dreams, and future endeavors for you and your family are realistically possible and attainable
• Having the ability to live within your financial means.

If I could boil all these definitions down, I might conclude that financial wellness is having adequate cash flow to live my desired lifestyle for the rest of my life without anxiety or fear. This to me defines financial independence rather than financial wellness.

Netwellness.org got closer with a definition of “working towards balance in how we think and feel about money, having an understanding of our finances, caring for finances so that we can handle financial changes, and being comfortable with where money comes from and where it’s going.”

Financial wellness certainly includes financial independence, but it is more than that. Financial wellness needs to include what a person thinks, feels, and believes about money. I know many people who are financially independent that I would not describe as having financial wellness. Some of them have almost debilitating guilt around having enough, live in fear that their money will run out, have such poor physical health that they can’t use their money to do the things they love to do, or lie awake nights worrying about what legacy they should leave to their children and grandchildren.

Financial wellness, then, is a balanced integration of financial, emotional, and physical health. It comprises having adequate cash flow, sufficient assets, the absence of illness, and the presence of emotional well-being. It is the sum of everything that goes with being financially, emotionally, and physically sound.

She had a point. Affluence inherently breeds a certain level of waste. So do negligence and inefficiency. I could easily have avoided wasting those veggies by reducing the amount I originally scooped onto my plate. When I dumped them into the trash, I was also wasting more than food. I was literally “throwing money away.”

As a financial planner, I regularly consult with people who have been throwing real money into the trash on a daily basis. Here are the top areas where people waste money and what they should do instead:

Buying investment products with hidden fees and commissions. This includes mutual funds, insurance, structured products, limited partnerships, and annuities. Costs can go as high as 10% of your initial investment and 5% a year. Since an average return may be 7%, subtracting 5% in costs leaves a paltry 2% return to the investor. A $500,000 investment could cost $50,000 up front and $25,000 a year. All too often, most of this information is buried in fine print and not voluntarily disclosed to you if you are dealing with an agent or broker.

What to do? Insist on full disclosure of fees. Even better, make sure you have someone looking out for your best interests, someone for whom you are a client and not a prospect. Home buyers routinely employ real estate brokers to represent their interests. Consumers of financial products need to consider doing the same.

Paying more than your fair share in state and federal taxes. A mentor once told me the best paying job in the world is understanding the tax code. Because the US tax code is extremely complex, most people try to just keep it simple. In this case, simplicity can come with a very high price tag. Some of the biggest tax savings come from fully funding retirement plans, maximizing deductions, proper use of corporations, and paying attention to your estate planning.

Impulse buying without researching products for quality and price. Comparison shopping pays big dividends, and the Internet makes it easier than ever. One of the best investments for frugal shoppers may be a subscription to Consumer Reports.

Buying new, brand name, large ticket items. America’s debt binge of the past five years will change our lifestyles for the foreseeable future. More of our income will go to taxes and personal debt repayment. New cars, houses, furniture, and even clothes are luxuries most of us must learn to live without. Get to know places where you can purchase these goods used. Check out local second-hand dealers as well as websites like Autotrader.com, Ebay.com, and Funituretrader.com.

Education for education’s sake. Getting an education is great, as long as it will help open career doors for you. Often I get resumes from people whose education has little or nothing to do with the job for which they are applying. A master’s degree in history is great if you want a career teaching history, but it won’t prepare you to own your own business. For many, it’s best to delay going to college until you know what education you need.

Ironically, some of these ways of wasting money are easy to overlook because they’re so big. But learning to spend more consciously in large transactions, from taxes to tuition, can save you enough to buy all the veggies you could ever want to eat.

This includes mutual funds, insurance, structured notes, limited partnerships and annuities. “Cost can go as high as 10 percent of your initial investment to 5 percent a year. When you consider that an average return may be 7 percent, subtracting 5 percent in costs leaves a paltry 2 percent return to the investor,” points out certified financial planner Richard Kahler of the Kahler Financial Group.

 To someone investing $500,000, the cost of a bad investment could be $50,000 up front and $25,000 a year. “Of course, all of that is buried in fine print and not openly disclosed to you if you are dealing with a broker,” he adds.

You can read the rest of the article and Rick’s advice here.

Not exactly. The economic crisis of 2008 apparently didn’t last long enough to create significant change in attitudes about personal saving. The amount Americans save out of their paychecks was almost zero at the peak of the credit bubble. Near the bottom of the recession it rose to 6.4%. In April, it fell to 2.7%, its lowest level since the crisis began in the fall of 2008.

I’ve argued that the economic crisis of 2008 was largely caused by Americans’ inability in recent years to save. In the early 1980’s the US national savings rate was around 10% of income. It has fallen steadily since then. Governmental policy changes in the late 90’s made borrowing even easier. Many lenders and investment banks abetted consumers in their hunger for more goods and services they couldn’t afford. As a result, our national savings rate dropped to just 0.8% in April 2008.

Inevitably, as in all credit bubbles, the house of cards collapsed. The economy went into a tailspin as lenders turned off the credit spigot, consumers slashed spending, millions lost their jobs, and many consumers defaulted on their debt obligations.

The US government decided the way to fight the necessary purging of bad consumer loans from the economy was to spend even more by borrowing and raising taxes. As a result, the US has seen its debt balloon from 64% of GDP in 2006 to an estimated 94% in 2010. Most economists predict that the government’s stratospheric increase in borrowing, while perhaps helping mitigate the blow in the short term, has guaranteed a sputtering and lethargic economy for years to come. One economist I recently spoke with shocked me when he predicted Greece’s debt problem will be easier to fix than America’s.

According to almost every prediction I read, we are in for a rough road for the next 10 to 20 years. Americans should expect to pay higher taxes and see a lower standard of living.

To survive, you will need to internalize and practice two simple economic principles. The first is: to build wealth you must develop the skill of saving. To save or invest,you (whether an individual, corporation, association, or government entity) must spend less than you make.

The second principle is: don’t borrow for consumer expenses. To quote my father’s wise financial advice: “It’s impossible to go bankrupt if you don’t owe anybody anything.” This means cut up the credit cards, don’t finance furniture or cars, and don’t borrow to fund your education.

As simple as these economic rules may seem, practicing them voluntarily is incredibly difficult for most people and organizations. Instead, many people (including elected officials worldwide) seem to ignore these principles until forced by the market to comply with them. That is when the lenders cut off your lending or you lose your job and can no longer make the payments on your debt. That is when the spending spree comes to its inevitable and painful end.

So, what can you do? First, don’t follow your neighbor or the example of most state and federal governments. Increase your savings, plan ahead for “unexpected” expenses like car and home repairs, and build a substantial emergency savings account for genuine crises like a job loss, a sudden death, or a natural disaster. Choose to live frugally now instead of waiting for an economic crisis to force you into painful, involuntary frugality later.

U.S. consumer spending rose twice as fast as income in March, as saving dropped to its lowest level in 18 months and a closely watched indicator of inflation remained stable, the Commerce Department reported. Consumer spending increased by 0.6% from the prior month, likely lifted by government efforts to spur economic growth, but personal income rose just 0.3% on a weak labor market. As a result, the U.S. saving rate dropped to 2.7%, its lowest level since September 2008.

This is a first step for her in learning good money management in the adult world. As she gets older and begins earning more money and making more of her own decisions, she’ll have more freedom in how she uses her account. By the time she gets to college, we hope she’ll have enough experience to manage wisely on her own.

One thing she shouldn’t be able to do as a college student is use a credit card to get into debt over her head. One provision of the new credit card rules that take effect this year is to make it harder for those under 21 to get approved for cards. Credit card companies have some new restrictions on marketing to college students. In addition, lending institutions must require co-signers for those under 21 unless they can prove they are employed or have another source of income.

As with all legislation, the new credit card rules will have some positive and negative consequences. One result of the co-signing rule that should be a plus for credit card companies is having someone else to tap for payments if young people abuse cards and run up debts they can’t or won’t pay.

This rule exposes parents to more liability, because in the past only the child was responsible for any abuses. This isn’t necessarily a negative, because it may mean parents will monitor their kids’ cards more closely and intervene before their spending gets out of control.

One of the problems with being a cosigner, however, is that you typically don’t have control over the debt instrument. I wasn’t able to find out whether the cosigner on an underage person’s credit card will have the authority to cancel the card. This would definitely be a question to ask the credit card issuer before agreeing to cosign. If parents could cancel the card, this would help avoid a situation where a child continues to run up debts and the parent, despite being responsible for them as a cosigner, would have little say over the card’s continued use. If not, it would make more sense to have a joint card so parents could cancel it if needed.

A more important question, however, is whether college students who are still at least partially dependent on their parents financially should even have credit cards. I don’t think they should for everyday purchases. I certainly could see an “emergency” card for kids who have demonstrated fiscal responsibility.

I would prefer to have a student use a debit card, especially with the new regulations on overdrafts. Banks can no longer routinely allow debit card charges that overdraw customers’ accounts, and then charge high overdraft fees. Instead, such debit card purchases would be rejected unless account holders specifically agree to allow overdrafts and pay the fees.

One argument used by both credit card issuers and young people eager to have their own cards is the need for young adults to build a credit score. I don’t see this as a valid reason to have a credit card. Quite frankly, we as a country need to focus more on becoming more cash-based. What better time can there be to start than when someone is young?

Learning to manage without credit can teach young adults some important lessons in money management that will help them manage credit well when they do need it.

In the article, Meredith quotes me as recommending that parents start kids on allowances when they are the right age, so they can start spending their own money. She says, “Financial planner Rick Kahler, of Kahler Financial Group in Rapid City, S.D., started his two sons at 5, with gradual increases until age 10. Then, they can do optional chores to earn more money, says Kahler, the author of “Conscious Finance” (Foxcraft Inc., 2007).”

All that is true, except for the “two sons” part, since I’m actually delighted to have one son and one daughter. The article makes some excellent points. You can read it here.

I can hear the comments now: “Rick, you’re a fat cat financial planner who doesn’t have a clue. Why don’t you try living on eight bucks an hour and see if you can save anything?”

That’s a valid point. It’s been a while since I worked at McDonald’s for $1.65 an hour and earned $300 a month renting apartments. Today, I am fortunate in not needing to worry about having enough to pay the basic bills. So I did some research and came up with a bare-bones budget for a single person living in Rapid City.

Rent for a tacky single apartment or a shared decent one: $300
Electricity $75
Gas and car maintenance $100
Car insurance $50
Cell phone $100
Groceries (eating at home) $200
Clothes (second-hand or on sale) $50
Medical (doctor visits, dentist, optometrist, prescriptions) $75
Entertainment and eating out $100
Miscellaneous (personal care, laundry, haircuts, gifts) $100
Total—without savings or health insurance $1150

At eight bucks an hour, your take-home pay would be about $1178 a month. You could just get by, but without health insurance or savings. At $10 an hour with a take-home of $1473, you could add $150 for health insurance and $150 for savings.

Here are some ways to live frugally enough to save when you’re just starting out:
• Find a cheap apartment or share with one or more roommates.
• Get a second part-time job and save most or all of those earnings.
• Learn to cook and eat at home; eat out only on special occasions.
• Drive an old car (preferably one your parents helped you buy when you were in high school and had money to spend).
• Buy clothes and furniture second-hand.
• Have fun on the cheap: rent movies instead of going to the theater, hang out with friends at home instead of going out.
• Skip cable TV and use the Internet at the library.
• Have a cell phone and no land line.
• Don’t smoke.
• Don’t even think about getting a credit card.
• Don’t have pets.
• Ask family members to give you cash as Christmas and birthday gifts.
• If you can, get health insurance through your parents’ policy; the health care bill allows you to stay on their policies until you’re 26. Taking the calculated risk of going without insurance won’t be an option after 2016.
• Consider negotiating living with your parents for a specified time period like one year—only with a firm commitment to save half of your earnings and a clear agreement, in writing, as to the household responsibilities and expenses you will assume.
• Become part of a community of friends who exchange help and services.
• Save something regularly, no matter how small. Start with even ten bucks a week—but start. It’s developing the habit that matters most.
• Invest in yourself. Make yourself a valuable employee, do more than is required, and use every opportunity to expand your skills through formal education or on-the-job training. This will increase your earning power in a hurry.

This frugal, self-disciplined lifestyle isn’t necessarily what the average single young adult is going to find appealing. Yet learning to think ahead and to live on even a little less than you have is the way to get out of a low-wage lifestyle so you can enjoy long-term financial health.