Learn the 8 Steps to Financial Fitness

A new report from the Centers for Disease Control and Prevention finds that life expectancy in the United States is at an all-time high. While we’re living longer and healthier lives, creating and maintaining financial fitness, however, is still a challenge for many Americans.

Financial fitness is a critical component of your overall health. It’s true, money can’t buy happiness, but a smart financial plan can contribute to peace of mind, your well-being and a comfort level that allows you to spend less time worrying and more time enjoying life.  Financial Wellness, Financial Fitness, Money Management, Money 101

How do I determine my financial fitness level?

Your financial fitness level can be assessed by identifying your short- and long-term financial goals and matching them against the resources you have available to achieve them. Your level of financial fitness reflects the ability to bring your current and future needs into balance.

Many people grossly overestimate their financial health. Denial plays a large part in that less-than-accurate belief, as does lack of knowledge or understanding. In order to achieve your ideal level of financial fitness, you need to identify the gap between where you stand currently and where you want to be in the future.

Your net worth is the total value of your assets, less your liabilities — a snapshot of your financial health.  Accurately identifying it is the first step in creating a realistic and feasible plan.1

  • Add the approximate value of your assets, including your home, your savings and checking accounts, investment portfolios, retirement accounts and any other benefits you have available.
  • Add your liabilities, including your mortgage balance, taxes, credit card debt, auto loans, student loans, personal loans, insurance expenses and any other outstanding bills.
  • Subtract your total liabilities from your total assets to determine your net worth. Is it a positive or a negative number? Do you have more assets than liabilities or vice versa?

Financial fitness, money management, money health, piggy bank, money 101Consider other financial resources you may have, including insurance policies, Social Security survivor’s benefits, healthcare coverage, disability insurance, liability insurance, and auto and home insurance. These, although not included in your net worth, can offer financial protection in times of crisis. Your aim is to create a positive net worth that can support your financial goals.

How can I improve my financial fitness level?

Financial fitness doesn’t occur overnight. Like diet and exercise, it’s a plan you put in place to gradually bring about a healthier result. It’s a life-long process of achieving and maintaining, but the sooner you get started, the more quickly you begin seeing results.  Here are eight steps to help you navigate the road to financial fitness:2

8 Steps to Financial Fitness

  1. Curb your spending: Many Americans continually live beyond their means without even realizing it, or the effect it has on their long-term financial position. To identify your spending habits, start tracking your expenses every month. This exercise will help you create a realistic budget.
  1. Make saving a priority: Roughly one-half of Americans say they have a savings plan in place to meet specific goals or emergencies, according to a 2013 survey commissioned by America Saves. Financial fitness views saving money as essential to building wealth. Your first step should be to establish an emergency fund. Once you’ve accumulated a reserve, you can allocate additional money to other savings’ goals.
  1. Reduce your revolving debt: High interest credit cards can wreak havoc on your financial health. Prioritize accounts and attack those with the steepest rates first, as quickly as possible, or consider a debt consolidation loan, as long as your spending habits are in check.
  1. Be aware of unnecessary fees. These include late payment penalties, bank fees, credit card fees, and other seemingly insignificant charges that affect your budget. A major contributor to these sometimes-costly occurrences is disorganization. With a little effort, you can turn these would-be fees into additional savings.
  1. Plan for retirement. One of the biggest mistakes in financial planning is the tendency to think there will always be more time. It’s important to focus on your current obligations, but you also want to start saving for your retirement years. Regardless of the investment vehicle you choose, starting sooner than later is the key.
  1. Consider pre-owned. Yes, it’s nice to have new, but it’s certainly not always a necessity. While purchasing some pre-owned items may not be ideal, many items can be found in good or almost-new condition and offer a big money-saving opportunity. It’s an acquired mindset, but one that makes complete sense.
  1. Postpone your retirement. Claiming your social security benefit prior to reaching your full retirement age (either 66 or 67, depending on your year of birth) could reduce your benefit by up to 30%. Healthcare costs before qualifying for Medicare at age 65 and the likelihood that you will outlive your retirement nest egg are also major concerns with early retirement.
  1. Invest in yourself: Continuing education, training, and personal development will maximize your earning potential in the future. There’s always the opportunity to boost your knowledge in your industry or field, regardless of your age, which will inevitably increase your value to current and potential employers.

With some guidance and discipline, almost anyone can reach a healthy level of financial fitness. It takes hard work, but the reward of breathing easier and enjoying the comforts of life will be well worth the effort.

1Source: United States Department of Labor/Employee Benefits Security Administration

2Source: Kiplinger Magazine, Wealth Creation, 10 Reasons You’ll Never Be Rich.