The 7 Keys to

Financial Health
Personal Financial Consultants

Serving clients throughout the

West and Hawaii since 1985

Personal Financial Consultants, Inc.

The 7 Keys to Financial Health Personal Financial Consultants, Inc.

Many of us were not

taught how to handle
money properly

The 7 Keys to Financial Health

Since 2007, the American Psychological Association
has conducted an annual Stress in America survey.
Year after year, the number one cause of stress in
the lives of Americans is money. In good times and
bad, three out of four Americans are more stressed
about money and the economy than about work,
physical health, children or family. Money stress
has a significant impact on our physical health and
emotional well-being. When we are financially
stressed, we are more likely to be depressed,
anxious, overeat, smoke and drink excessively.
Money stress interrupts our sleep, can cause us to
be irritable, can have a negative impact on our
work lives, and cause problems in our relationships
with our partner, friends and family members.
Many of us live in shame around our financial lives:

We know we should not spend more than we

make but month after month we come up short.
We know we should save for the future but we
dont have an emergency fund or adequate
retirement savings.
We know we should have a budget but have not
taken the time to track our expenses.

We regret having made some bad investments

or impulsive purchases.

Some of us have more than we need but are too

anxious to enjoy it. We know we should do better,
but in the course of our day-to-day lives, we just
havent been able to make it happen. These feelings
of shame can keep us stuck:

We may be reluctant to ask for help because we

are embarrassed of our financial reality.
We keep our financial lives a secret from those
closest to us.
We may feel discouraged and hopeless.
We may feel that change would take too much
time and effort or that it is downright impossible.

Before we can take charge of our financial lives, we

first need to disentangle from our feelings of shame.
It is important to know that many of us wound up
in bad financial shape because we were not taught
how to handle money properly. After all, before we
were given a license to drive, we had to take drivers
education courses, practice driving under adult
supervision, take a written exam and pass an onroad driving test. However, many of us did not get a
good financial education. Home economics classes
are no longer taught in schools. Sadly, most of these
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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

programs have fallen victim to educational budget

cuts. This was the one place children were taught
about budgets and balancing a checkbook.

Another barrier to financial health is that money

is a taboo topic. Surveys show that parents
would rather talk to their children about the
birds and the bees than have a discussion about
money. Given our lack of education around
money, we are ill-equipped to deal with it when
we are thrust into the adult world. Our problems
are compounded when we gain quick access
to our first credit card. Many young Americans
find themselves quickly and deeply in debt. The
addiction to debt extends far beyond our college
campuses. Prior to the 2008 economic crisis, the
average American had over $8,000 in credit card debt and a savings rate of -0.5%. This savings rate
was the lowest in the United States since the Great Depression.

Money is a taboo topic

If you are under financial stress and your financial health is lacking, you are not alone. The good news
is that you can gain control over your financial life. It is time to give yourself a break, dust yourself off
and take steps now to improve your financial health.

Key #1: Get a Financial Health Checkup

Is your spending under control? Do you have a budget? Do you have money set aside in the event
of an emergency? Are you saving for your most important goals, such as a childs education, a
financially secure retirement, your ideal home or your dream vacation? Do you and your partner or
spouse fight about money? Are you happy about your relationship with money?

The first key to financial health is to take an honest financial inventory. This can be challenging for
many because financial stress can motivate us to deny our financial reality and avoid thinking about
our relationship with money. Financial stress is associated with depression, marital dissatisfaction,
occupational impairment and health problems. While offering a quick fix in anxiety reduction, such
avoidance just adds to our financial mess and serves to keep us stuck.

In contrast, financial health is an important aspect of physical health, emotional health, relationship
satisfaction and life satisfaction. Lets start with a test of your financial health using the Financial
Health Scale (FHS). This test was developed by Dr. Brad Klontz, Psy.D., CFP , in his work at Kansas
State Universitys Personal Financial Planning Department.

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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

Financial Health Scale (FHS)*

Circle the number that best describes the extent that you agree or disagree with each of the following.
1

Strongly disagree

Disagree

Neither agree nor disagree

Agree

Strongly agree

Score

1. My spending is under control.

3. I am saving for my goals (e.g., school, car, house, etc.).

2. I understand my financial goals.

4. I have a spending budget.

5. I consistently follow my spending budget.

6. I have clear financial goals for the future.
7. Financial issues do not depress me.
8. I am proud of how I handle money.
9. I avoid thinking about money.

10. I often buy things in an attempt to make me feel better.

11. The way I manage money is consistent with my values, goals and dreams.
12. I obsess about financial matters.

13. I have money set aside for emergencies.

14. Financial issues do not confuse me.

15. I often spend more money than I can afford.

16. I have lots of fears and insecurities around money.

17. I am taking the steps necessary to meet my financial goals.

18. I have trouble controlling my impulse to buy things.
19. I let others take advantage of me financially.

20. I am comfortable talking about money issues.

1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2

3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3
3

4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4

5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5

Printed by permission.
*Klontz, B.T., Bivens, A., Klontz, P.T., Wada, J. & Kahler, R. (2008). The treatment of disordered money behavior: Results of an open clinical trial.
Psychological Services, 5(3), 295-308.

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Scoring Instructions
1. Circle items 9, 10, 12, 15, 16, 18 and 19.

2. The items you have circled need to be reverse scored. For example, if you circled a 5 for question #9,
you would give it a value of 1 as illustrated in the following formula:
a. 1 = 5b. 2 = 4c. 3 = 3d. 4 = 2e. 5 = 1

3. After you have reverse scored items 9, 10, 12, 15, 16, 18 and 19, transfer the score to the scoring column.
4. For the remaining items, just transfer the number you circled to the Score column.
5. Add up the numbers in the Score column. This is your financial health score.
6. Use the table below to see what it means.

What Your Score Means

2059

6079

80100

Your Financial Health May Be in Jeopardy

You are experiencing stress in your relationship with money. You may lack clear
financial goals, have difficulty saving, and may be spending in ways that are
inconsistent with your values and goals. It is likely that you are experiencing
conflict in your relationships with money and you may have difficult emotions
related to finances, including guilt, shame, depression or confusion. You may lack
important financial knowledge and would benefit from assistance in discovering
and working through emotional blocks around money that are keeping you stuck.

Your Financial Health Is Fair

While you have some positive aspects in your relationship with money, you are
not realizing your full financial potential. While not causing you overwhelming
distress, your financial behaviors may not be entirely consistent with your values
and goals. Further financial education, financial planning assistance, and possible
help in exploring your relationship with money may help you reach your financial
goals, strengthen your relationships and improve your financial health.

You Are in Good Financial Health

It is likely that you have a relatively healthy relationship with money. You have
clear financial goals, are taking steps to achieve your goals, and are effectively
executing a savings and spending plan. It is likely that you are open and honest
with those close to you regarding financial issues and have found ways to
successfully negotiate financial issues in your relationships. If you dont already
employ the services of a financial planner, it may be time to consider securing
expert assistance in helping you maximize your financial potential.

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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

While the FHS doesnt measure all aspects of financial health, it is a useful tool to give you a rough estimate.
A comprehensive financial plan created by an independent financial planner is recommended for a detailed
analysis of ones financial health. A well-constructed financial plan makes use of a comprehensive datagathering process and powerful statistical tests to determine the probability of successfully funding
retirement and other goals based on current assets and a variety of other variables, including historic and
projected investment returns, rates of inflation and the possibility of big market declines. A strong financial
plan either confirms a good financial course or provides specific recommendations for getting on track.
Personal Financial Consultants offers this service to our current and prospective clients.

Regardless of your current level of financial health, the great news is that you have the power to take charge
of it. If your current financial health is poor, you can improve it. If you have great financial health, you can
make it even better. The remaining keys are designed to help you do just that.

Key #2: Take Responsibility for Your Retirement Planning

Imagine yourself at 90 years of age. You wake up to the sound of your alarm at 5:30 a.m. and to a few aches
and pains. You get up, shower, get dressed, have a quick breakfast, pat your dog on the head and head out to
your nine-to-five job. How does that sound? Sure, there is nothing like some grey hair to give your employer
increased confidence that you are the source of great wisdom. However, you might not want to be in a position
where you are required to work in order to pay your rent and buy food in your golden years.
At the risk of bursting your bubble, if you want to stop working someday to focus on traveling, fishing,
gardening, knitting, writing your memoir or spending time with your family, you will need to make it
happen on your own. Thats right. It is all up to you. Pensions (also known as defined benefit plans),
which pay retirees a guaranteed, inflation-adjusted income for the rest of the retirees life and the

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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

life of his or her spouse are on the quick road

to extinction. The recent bankruptcy filings of
corporations and municipalities have shown us that
the pensions that are still in existence may not be as
secure as we once thought they were. Because of a
desire to cut costs, employers are off-loading the risk
of funding retirement to employees. And dont let the
security in Social Security fool you. Even if Social
Security is still around for your golden years, it wont
give you enough income to make you financially
secure. This rapid cultural shift requiring retirees
to fund their own retirement has far outpaced the
necessary time, education and planning needed to
equip them to be successful. Many hard-working
Americans have not gotten the message that they are
on their own and are not doing what they need to do
to plan for a secure retirement.
Sadly, in terms of planning for their retirement, the
majority of Americans are living as if they are:

In total denial about their aging, their projected

spending needs, and the steps they need to take
to secure their retirement
Hoping someone will swoop in at the last minute
and fund their golden years
Planning on dropping dead at the office

To make sure you have what you need in

retirement, it is important for you to maximize
your contributions to your employer-sponsored
retirement plans, such as a Simple IRA or 401(k).
If you are self-employed, you can set up your own
retirement plan. In addition, consider contributing
to an individual retirement account (IRA). Roth
IRAs are a great option. With a Roth IRA, you
pay taxes on the money you put in now, and your
investments grow tax-free. If you are just getting
started, you can set one up yourself at www.
Vanguard.com or www.Fidelity.com. A popular
investment option is a target retirement fund. You
just choose the fund that is closest to your target
retirement date and the asset allocation rebalances
automatically (and gets more conservative) as
your retirement date grows closer. This is a great
option for the investor who is just starting out. If
you are one of the lucky few who have a pension
plan, you may also be eligible to also contribute
to an IRA, which is something you should make a
priority. When you accumulate a significant amount
of assets (e.g., $500,000), consider employing the
services of a fee-only financial planning firm to
manage your investments.

Key #3: Start Saving Now

Dont wait until your student loans are paid off. Dont
wait until you have paid off your house. Dont wait
until you have put your children through college.
Start saving for your financial freedom right now. A
good rule of thumb is to commit to saving 1020% of
your income for retirement. Let compound interest
work for you. There is no reason why the average
American couldnt retire a millionaire. It doesnt take
much if you start early.
For example, if a 22-year-old man set aside the
maximum yearly allowable contribution of $5,000
a year in an IRA that earned 8% annual interest,

Time is the biggest factor

in growing money

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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

he would have $2.1 million by the time he reached age 67. Time is the biggest factor in growing money as it
allows the principle of compound interest to take effect. If this same individual waited until age 40 to begin
saving, he would have only $427,000 by the time he was 67 years old.

The later you start, the more you need to save each year to reach that goal. If you havent started saving yet,
you may need to set aside a larger sum of money or plan on delaying retirement or moving to part-time
employment when you are ready. Whatever you do, dont let a late start stop you. It is never too late to begin
saving. Start now.

Key #4: Cover Your Assets

Did you know that you are already insured for all of the financial risks in your life? If you arent paying
someone else for that insurance, whether it is health insurance, life insurance, renters or homeowners
insurance, or disability insurance, technically speaking, you are still insured. When you bear all the
financial risk in every aspect of your life without diversifying any of that risk to a third party you are
said to be self-insured. Self-insurance is a legitimate risk management technique when it is done
consciously. Unfortunately, many people are self-insured for higher probability risks without thinking
about those risks and without making a conscious choice to self-insure. It is also rarely a good idea to
self-insure every risk for yourself, your business or your family or to bear all the financial burden of a
higher probability, potentially devastating risk even if you have deep pockets. That is where third-party
insurance comes in.
Auto, health and homeowners insurance are not enough for most people. Chances are you need
disability insurance. Your odds of becoming disabled and being unable to work for a period of time far
exceed your risk of premature death. Supplemental Security Income (SSI) will not cover your needs.

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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

One of the biggest problems facing the average

investor is a lack of diversification
Consider the benefits of disability insurance. If loved ones depend on your income to maintain their quality
of life, you also may need life insurance. Stay away from whole life, variable life and universal life policies,
which combine life insurance with investments. Agents push these policies because they make much bigger
commissions, but most objective financial planners advise against them. Stick with a term life insurance
policy, which will cover you for a set number of years. The term should last until your dependents wont
need your income anymore. A general guideline is to have a death benefit that is at least eight times your
annual income. You can shop for competitive term insurance rates at websites like www.AccuQuote.com
or www.Insure.com.
Non-working spouses may need their own coverage. Dont ignore the costs it will take to cover his or
her contributions to the household, which could include homemaking and child care. As you get closer
to retirement age, you may also need to consider purchasing long-term-care insurance. Many insurance
products require you to self-insure a portion of the risk in the form of deductibles and/or waiting
periods. This type of self-insurance makes sense. For most people, however, it is a terrible idea to self-insure
all risks as your insurer (also known as you) may go belly up when you are in most need of financial support.

Key #5: Diversify Your Investments

You have heard the saying, dont put all your eggs in one basket. The idea, of course, is that if
all your eggs are in one basket and the weaving fails, you drop your basket, or you trip and fall,
all of your eggs can be destroyed in one fell swoop. This idiom also applies to investing. One of
the biggest problems facing the average investor is a lack of diversification. The average American
is not adequately diversified. Research shows that more than half of the worlds wealth is now
located outside of the United States. However, the average Americans stock portfolio is made up
of predominantly domestic companies, which comprise 87% of the equity holdings. The same lack
of diversification happens in other countries. The Japanese, for example, are 90% invested in
Japanese stock. Putting all or most of your eggs in one countrys equity basket is a gross violation
of the principle of diversification.

Investors also have a tendency to follow the latest in vogue assets and scorn asset classes that are
depressed, which works against their best interests. Investors are also predisposed to make buy,
sell and hold decisions for emotional reasons. These biases occur for many psychological reasons,
increase an individuals risk of financial loss and have a negative impact on diversification.
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While the actual percentage of money that should be allocated to a particular area depends on an
individuals risk tolerance, needs and goals, a well-diversified portfolio can include all of the following in
various percentages:
Domestic (U.S.) Equities (Growth or Value)

Foreign Bonds (Corporate and Governmental)

Developed Countries
Emerging Markets

Large Company Stocks

Midsize Company Stocks
Small Company Stocks
Very Small Company Stocks

Foreign Stocks

Developed Markets (e.g., Western Europe,

Japan, Canada, Australia)
Emerging Markets (e.g., Eastern Europe,
China, Brazil)
Frontier Markets (e.g., Smaller Markets in
Asia, Latin America and Africa)
Domestic (U.S.) Bonds (Long, Medium and
Short Duration)

Treasury Bonds
Treasury Inflation-Protected Securities (TIPS)
Mortgage-Backed Securities
High-Yield (Junk) Corporate Bonds
Medium-Quality Corporate Bonds
High-Quality Corporate Bonds
Municipal Bonds

Real Estate Investment Trusts (REITs)

Domestic Real Estate
Foreign Real Estate

Commodities (e.g., Natural Resources)

Precious Metals (e.g., Physical Metals,
Mining Companies)
As you can see, there are a plethora of potential
asset classes in which modern investors can put
their money. Financial planners agree that a welldiversified portfolio is essential for reducing volatility,
improving overall returns and maintaining good
financial health. Given the complexity of investment
options and the need to evaluate how they influence
risk and return in a given portfolio, it is best to get the
advice of a financial planner to help determine the
appropriate asset allocation to meet your needs.
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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

Key #6: Plan Your Legacy

One of the biggest threats to your decedents financial and emotional well-being is the lack of a legacy plan.
A poorly designed set of instructions for how your assets should be distributed can result in significant
family conflict, emotional distress and financial devastation. The lack of such a plan can result in pure
chaos. Financial transitions upon the death or disability of a key family member are difficult even when they
are well-thought-out. However, the loss of a loved one combined with an ill-conceived legacy plan can be
downright traumatic.
A critical aspect of legacy planning involves the creation of a will. A will is a legal document that outlines
how you want your assets distributed. To be valid, a will must meet certain legal requirements, and as such,
should be developed with the assistance of a reputable attorney. A good will clearly and accurately reflects
your wishes, complies with state laws, is up-to-date and will not create conflicts in your family. If you have
not set up a will yourself, you may be surprised to learn that you already have one. The state in which you
live has predetermined what it thinks is a fair way to dispose of your assets when you die. This is what
happens in the probate process.
In addition to a will, trusts are often recommended to assist with legacy planning. Trusts establish a thirdparty entity to manage property or make decisions for a beneficiary. Trusts come in many forms and
iterations, including special needs, revocable, irrevocable, springing, living and testamentary.
While nearly everyone needs a will, a financial planner can help you determine if you could benefit from
establishing a trust and refer you to a qualified estate planning attorney.

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The 7 Keys to Financial Health Personal Financial Consultants, Inc.

For advice on how to

choose a financial
planner, please see our
guide: How to Choose a
Financial Planner

Key #7: Seek Professional Help

Please dont tell us you are still doing your own taxes. Unless you subscribe to five of the top ten accounting
and taxation journals and surf the IRS website on the weekends, perhaps you should leave it to the experts
(the same goes for outsourcing your familys dental services). In terms of financial planning, get some
expert advice along the way. Look for a Certified Financial Planner professional to ensure a minimal
level of education and expertise. Ask a potential financial planner how they get paid. If commission or
fee-based is part of the conversation, dont be surprised if there is some pressure to buy things. If you find
a planner who is paid a percentage of your investible assets or pay a financial planner an hourly fee for his
or her expertise, you are much more likely to get objective advice.
For a fee, some financial planning firms, like Personal Financial Consultants, will conduct a comprehensive
financial plan for you. These plans take into consideration your resources and your goals and offer concrete
recommendations to help you meet your goals. If you are not looking for someone to manage your assets,
it can be helpful to employ a financial planner to whom you can pay an hourly fee for his or her objective
advice. The Garrett Planning Network (www.GarrettPlanningNetwork.com) is a group of fee-only financial
planners who are willing to provide objective advice for an hourly fee.
Not all financial stress can be cured by financial advice alone. If you are engaging in a pattern of chronic,
self-destructive financial behaviors, consider seeking the help of a financial therapist. For those of us who
know what we should be doing but just cant do it, the expertise of a behavioral finance expert, who can
help us untangle destructive financial beliefs and behaviors, can be invaluable. A list of individuals who
specialize in financial therapy can be found at www.FinancialTherapyAssociation.org.

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Conclusion
There is nothing better than the feeling one gets from a sense of financial security. To review, the 7 Keys to
Financial Health are:

1) Get a Financial Health Checkup: If you dont take an honest look at where you are, you will never be
able to get to where you want to be.

2) Take Responsibility for Your Retirement Planning: The rules have changed. Pensions are no longer
an option for most, Social Security is not secure and no one is going to take care of your financial
needs in your old age. You need to take responsibility for yourself.
3) Start Saving Now: Time is the biggest factor in securing financial freedom. Regardless of your age or
how far behind you are, start saving today.

4) Cover Your Assets: Dont let an adverse event wipe you out. Diversify your risk by buying appropriate
insurance policies.
5) Diversify Your Investments: As the wise farmer says, Dont put all of your eggs in one basket.
Appropriate diversification is a primary factor in decreasing your portfolios volatility and insuring an
adequate long-term rate of return.
6) Plan Your Legacy: Dont sentence your loved ones to a state of financial and emotional turmoil. Take
the time to think about what kind of financial legacy you want to leave.
7) Seek Professional Help: Consider employing the services of a CPA during tax season, seek the
advice of an experienced financial planner when it comes to managing your investments, find a
financial therapist if you are engaging in financial self-destruction and dont engage in at-home
amateur dentistry.

Odds are you are one of the 75% of Americans who year after year, in good times and bad, identify money
as the number one source of stress in their lives. Let your financial stress motivate you to take action today.
Financial health is a critical aspect of mental health, marital happiness, family security and life satisfaction.

If you want to create a financial plan or talk about our investment advising services, please dont hesitate to
contact us at Personal Financial Consultants.
Wishing you excellent financial health!

Your team at Personal Financial Consultants

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP, Certified Financial Planner and federally registered CFP
(with flame design) in the U.S., which it awards to individuals who successfully complete CFP Boards initial and ongoing certification requirements.

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Retirement Planning:
Get Started Today

Planning for retirement is a lifelong process. By

starting today, even if youre just saving small
amounts, you can increase your odds of enjoying
a comfortable retirement in the future. Make an
appointment with Personal Financial Consultants.
We can talk to you about your long-term goals and
help you develop a retirement savings strategy
that works for you.

Contact us at 888-557-3272 or at
info@PersonalFinancial.com to schedule
your appointment today!

1970 Broadway, Suite 1140, Oakland, CA 94612

888-557-3272 www.PersonalFinancial.com

Personal Financial Consultants, Inc.