A term that is often used when talking about personal finance, Financial Fitness can be used to gauge how strong someone is at keeping their financial matters under control. Like any type of fitness activity; practice/training, proper technique, and coaching are important factors that will get you started down the right path towards becoming financially fit.
Table of Contents:
- 5 Key Components Financial Fitness
- Financial Fitness Quiz
- How to Practice and Train Financially?
- Proper Technique for Financial Fitness
- What is a Financial Coach?
- Helpful Resources
- Frequently Asked Questions about Financial Fitness
What is Financial Fitness?
Financial Fitness is consistently practicing good habits that keep you on top of managing and tracking your finances so that you feel confident and secure about your present and future financial situation. Check out our 5 key components in becoming financially fit below:
5 Key Components of Financial Fitness
Write Down Goals
The first step towards financial fitness is deciding that you want to commit to a healthy financial lifestyle by moving this decision from an idea to written evidence. Like any good self-help speaker or author recommends, there is a big difference between having ideas of goals and actually writing them down.
The first step down the path towards financial fitness is to go onto your notes app on your laptop/phone or get a physical piece of paper or notebook and write down both short and long term goals you have regarding your current and future financial situation. Having your goals written down makes them that much more real.
Make a Budget
The next important step towards becoming financially fit is based around the idea of practice/training. You can practice financial fitness and train your financial health by creating a budget that tracks your current income and expenses.
You probably have the exact monthly values for income and recurring expenditures (car lease, rent, video streaming subscription, etc.) so they will be easy to compare. After finding these values, make a rough estimate of your other expenses that vary month to month by taking an average of your past three months credit card statements (don’t include your recurring expenses.) This will be a basic level budget that can be used to see what your cash flow looks like.
The more often you keep up with this practice of tracking money coming in against money going out, the more financially fit you will become. Like trying to become stronger in a specific lift at the gym, you must consistently practice and train. Keeping up with your budget will become easier and less time consuming as you make it a habit which is the desired result you want from consistent practice.
Allocate Investments
In terms of allocating investments towards financial fitness, you need to look at what different events you are planning for. These events typically include short-run expenses such as home buying or going on a vacation. The next type of event people save for is the biggest long-run expense, retirement.
Saving for a short term expense will require the money that is being saved/invested for these expenses to be lower risk and more liquid. Low risk investments will typically include certificates of deposit and high yield savings accounts. These investments grow at a slower rate, but they have less risk of declining sharply in value (which is very important that this does not happen right before your short-term expenditure.)
Saving for retirement in the long term means you can handle shorter run risk with hopes that long run you will realize a higher payoff. Depending on your personal inclinations towards risk taking and how many years you have until retirement, you can allocate your investments in a manner that will give you a better chance of having more money during your retirement. Higher risk investments include stocks and corporate bonds. The values of these investments will fluctuate in the short run much more, however, in the long run they are expected to realize much greater returns.
Allocating your investments for different purposes based on time and risk level are the proper techniques you need to implement on a path towards financial fitness.
Manage Debt
Most people come into the working world with a good bit of debt right out of college. On top of that, many other people constantly face debt in other areas ranging from credit card bills to mortgage payments. The more debt you have, the more difficult it will be to become financially fit.
The next step towards financial fitness is another form of practice that involves consistently keeping track of and paying your bills towards reducing your debt. Consistently paying off debt is much easier said than done. Many companies, apps, and individuals are available to help people that have problems with their current debt burdens, and these can be great resources to use when working towards financial fitness.
As you practice towards becoming consistent at knowing how much debt you owe and paying your monthly bills, you will make yourself more aware of your overall financial situation. Being aware and in control of your financial situation is a feature that all financially fit people have in common.
Talk with Professional
The last step towards financial fitness is all about coaching. Sports coaches help lead teams filled with different players towards a common goal of winning a championship. Fitness coaches help guide you down the best path given your athletic abilities and goals towards getting into great shape. Financial fitness coaches work with you in developing the best individualized plan for becoming confident in your current and future financial situation.
A financial fitness coach could range from a financial advisor to debt counselor. This is listed as the last step because it is important to try and first feel confident in yourself and your personal financial fitness by starting to follow the four previous steps. If you follow these steps and believe that you can work towards financial fitness on your own, then that is a great personal accomplishment you can have for yourself.
Each person has a different financial situation, and some may be more complex than others which is why it is often good to consult a financial professional if you don’t feel confident that you can achieve financial fitness on your own.
Financial Fitness Quiz
Financial Fitness is consistently practicing good habits that keep you on top of managing and tracking your finances so that you feel confident and secure about your present and future financial situation.
Financial Fitness is consistently practicing good habits that keep you on top of managing and tracking your finances so that you feel confident and secure about your present and future financial situation. This quiz is scored on a scale of 0 to 20 with 20 being the highest level of financial fitness. This will give you a point of reference to help you decide if you may or may not need to spend some more time working to become financially fit. If your score is lower than you expected, or not in the range of “You are Financially Fit” then you should continue reading for more tips on becoming financially fit. Try out the quiz below or click here.
How to Practice and Train Financially?
Made popular from Malcolm Gladwell in his book, Outliers, the 10,000 hours rule is the idea that it takes 10,000 hours of practice to fully master a skill. Although this rule has been challenged by many others, anyone on the street will tell you that in order to become good at something, you must practice, a lot. Not many people could wake up tomorrow and go run a marathon without having trained consistently leading up to the race.
The same goes for having full confidence in your finances. Confidence in your financial situation comes from practicing and training good financial procedures consistently until they become habits. Once you have built up good financial habits, you will be on your way to becoming financially fit and maintaining confidence in your current and future financial situation.
What is the Proper Technique for Financial Fitness?
If someone wants to become extremely strong at weightlifting, and they decide to just go to the gym and lift as much weight as they can every day without following any guidance on proper technique, they will probably end up with an injury. The same can go with starting to practice and train yourself to become financially fit. If you start trying to control and better your financial situation without regard to what techniques will be the most beneficial to you, you could end up losing a lot of money.
Technique in financial fitness can range from properly deciding how to allocate your investments to determining at what age you will be able to retire. Implementing the proper technique when practicing financial fitness will enable you to more efficiently improve towards a confident financial situation.
What is a Financial Coach?
Having guidance provided by someone with lots of experience is extremely valuable. Just like how sports teams have coaches and individuals have personal trainers, many people also utilize a financial coach. A financial coach is someone that works to help someone else to increase their overall knowledge of managing their personal finances. The main purpose with a financial coach is having someone to help guide you down a path towards achieving financial fitness.
Are You Financially Fit?
Determining if you are financially fit will start with looking at the 5 components of financial fitness. If you can check off that you are confident that you have:
- Written down goals
- Made a budget
- Allocated your investments
- Managed your debt
- Talked with a financial professional
Then you will be on your way towards financial fitness and can be confident in your current and future financial situation.
Helpful Resources
Here are some helpful resources to get you started on your path towards financial fitness:
Personal Capital – This is a great, easy to use, financial management platform where you can visualize all your accounts in one place.
Charles Schwab – With commission free trades as well as other benefits, Charles Schwab is a great place to open a brokerage account or IRA (retirement account) for yourself.
Financial Fitness FAQS
Being financially fit implies that you have built up strong confidence with your current and future financial situation. This comes from following the 5 key components of financial fitness as well as being consistent at keeping up with practicing and training your financial fitness skills. If you believe that you practice good financial fitness techniques outlined in this article and feel confident in your situation, then you will be financially fit!
Typically a financial coach is better for someone with less current money saved up and available to invest. A financial advisor is usually best for someone with lots of money already saved up for retirement and ready to invest. Take our financial fitness quiz to see where you stand.
The best time to start doing something as helpful as making a budget is right now! The sooner you can start to build your own budget plan, the easier it will be to consistently keep track of it. Making a budget is an important component towards financial fitness.