What is financially fit? You can measure your physical fitness in a variety of ways. You can measure your heart rate, pulse, strength, body composition, flexibility, coordination, etc.How do you know if you are financially fit?“Being physically fit is having the energy to perform your daily duties alertly and with vigor, while also maintaining adequate energy for leisure activities.” Are you financially fit?
If you were overweight, you would go on a diet and exercise. You might make some changes in what you eat and how much you exercise. It generally means setting goals and measuring your progress. You can weigh yourself or just check the fit of your clothes. I usually just check how my clothes fit and make a change to achieve the outcome. Measuring financial fitness is a little harder!
One measurement of financial fitness is savings. If you spend everything you earn, it is a recipe for disaster! You are just weeks away from problems! I am sure you have heard people say they are just one check away from homelessness. Savings is for the unplanned or surprise events that all of us experience in one or another. It may be a car repair, medical bill, or job loss. All of these events are life changing and will mean you will have to go into debt to handle them without savings.
5 steps to financial fitness
- Savings – Depending upon your particular circumstance, you should have at least six (6) to nine (9) months expenses in savings for emergencies. Emergencies range from car repairs, medical bills, or job loss. In this economy (although improving) , you may be unemployed for months. It would be great to have savings for this type of emergency. Besides emergencies, you should save at least ten (10% percent of your earnings for retirement savings.
- Goals and a plan – I use SMART goals to hold myself accountable. My goals are specific, measurable, attainable, realistic and timely. My plan breaks down the goal into tasks or objectives daily/weekly/monthly to help me measure me my progress. It is an excellent way to achieve your financial goals.
- Budget – A budget is a structure to help you achieve your financial goal. It helps you keep your spending in control and helps you set your priorities. You can measure your financial health by just looking at the numbers.
- Long term financial plan – What are your long term financial goals? It may be buying a home, retirement or education for your children. Your budget should support your long term goals by helping you put aside savings for those goals.
- Investment diversification – Often, people put too much of their investments in just one investment such as your home, rentals or company stock. We live in a global economy where stock market or real estate values do fluctuate. In the last recession, the stock market and housing market tanked at the same time. It was one of the reasons consume r confidence went to such a low level.
Final thoughts
Measuring your financial fitness can be measured by savings, net worth or debt levels. You should always have savings for emergencies because you never know when a repair, medical bill or job loss can happen. A little planning goes a long way to help you be financially fit. All you need is a budget and a long range plan to help you achieve your financial goals. A budget will help you control your spending and help you set priorities. Are you financially fit?
Photo by: Flickr
When I track our net worth, not only do I track the total amount by month, I keep a running total by various categories: Retirement, Housing, Autos, Liquid Assets, Debt. Not only can we look at long term progress in total net worth, but we can see where we might be excelling (or lagging) in one particular area. This definitely allows us to refine our strategy and stay ‘fit’ across the board.
Good job! Monitoring net worth is always a good idea, but I would probably do it on an annual basis.
If people only followed these 5 steps and nothing else they would be in good shape.
No pun, but financially fit! Very true and thanks for your support.
I really like this analogy. Just like being fit, there is no one way to measure financial health… the key is to be responsible in a number of different ways.
Thanks, financially responsible is just doing what you are supposed to do. If you do, your FICO score will increase appropriately.
Great post! It’s very informative about on how to become financially fit. These 5 steps are very helpful and useful to become financial fitness. I learned and many great insights here. I will definitely share this to my friends. Thanks for sharing this article.
Thanks, many people think more about physical or mental fitness, I thought it was time for financial fitness.