Financial Fitness

What does it mean to be Financially Fit? First let’s ask, ‘What does it mean to be physically fit?’ For some, being physically fit means having the strength and endurance necessary to win a marathon; for others, it is simply to finish. While some want to be able to compete at a professional level, most agree that being physically fit means having a level of fitness necessary to look good, enjoy a healthy life, and be able to participate comfortably in the activities they like.

There is no predefined point at which we suddenly become physically fit. Physical fitness is more about being on the right path and doing the right things from a diet and exercise perspective than reaching some magical point in time. However, having specific and attainable objectives that provide motivation for continual improvement is very important. Otherwise, we may struggle with direction and find it difficult to stay on the right path.

It's a State of Mind!
Financial fitness is also more about being on the right path than it is about reaching some magical number on a net-worth statement. Clearly, it is more a state of mind than a specific level of wealth. And like the concept of physical fitness, setting appropriate goals and objectives will provide motivation for continual improvement. Most people know if they need to become more financially fit. This knowledge generally stems from their daily interaction with issues surrounding money.

Measure Your Financial Fitness
Perhaps financial fitness can best be measured by how we feel as we interact with money on a daily basis. The following is a list of the many thoughts and feelings that you may experience as you progress towards a goal of becoming financially fit:

1. You have money set aside for the holidays before the shopping begins.
2. You are able to go to work every day knowing that if you lose your job or have a major illness, you have sufficient emergency funds set aside to carry you through.
3. Next year when school starts, you are able to purchase school clothes and supplies from money that is already set aside.
4. You never need to worry about checking the account balance at the bank before you pay a bill.
5. You are excited to get the next credit card statement, because you know that the balance is shrinking and if any purchases have been made, you already have the money set aside to pay for them in full.
6. Picking up the mail every day is not a drudgery, because you know that all of the bills coming in are just part of your spending plan and have been anticipated in advance.
7. You look forward to making decisions regarding the education of your children, because you are actively saving money for this purpose.
8. You spend time planning and anticipating retirement, because you are debt free and prudently investing money to fund the lifestyle you want to have.
9. Financial discussions with your partner are more focused on reviewing progress and planning for the future than on the last credit card statement, late bill, or emotional purchase.
10. The last thought on your mind as you drift off to sleep is about how much fun your upcoming vacation will be rather than a worrisome question of how you will be able to make ends meet.

There is a new tool that can help you better understand your financial fitness. This Financial Fitness Quiz asks 25 simple multiple choice questions and tells you your financial fitness level. Take the Financial Fitness Quiz and find out how you score. You may want to take the quiz yourself and also have your spouse take the quiz separately. You can then compare answers to help you better understand how you each look at your finances (the quiz has a convenient print function at the end to allow you to save your results for later review).

Why Is It So Difficult?
Often this isn’t for lack of desire or even knowledge—many of us know the basic principles necessary to achieve financial fitness. However, in today’s world we have many convenient methods by which we can access and spend money. Most families have multiple checking accounts, overdraft protection, a home equity line, debit cards, credit cards, and store cards. The problem many of us face is that these convenient methods of spending ‘mask’ the root of our financial challenges—which are overspending and debt. People often spend as much as 10% more than they make every month… That adds up quickly! And most people aren’t even aware they’re doing it… until it’s too late.

Many of you may already be financially fit, and are already experiencing some of these feelings and thoughts mentioned above. However, for the majority of us, keeping our financial house in order is a daily struggle. We often spend a lot of time and energy worrying about paying bills, running out of money, increasing debt, or even maxing out our credit cards.

The First Step
If you want to become financially fit, the first thing you need to do is stop overspending. This sounds simple, but for most, it’s anything but. The fact is, if you don’t have a spending plan, you will continue to struggle with overspending and debt accumulation.

As soon as you stop living within your means, you begin to jeopardize your financial future and the achievement of the goals you have set. Consistently following the five steps outlined below will help you maintain and enhance your long-term financial fitness:

1. Complete a spending plan, and then review it and make appropriate adjustments each month. This should always be done with your partner. Make sure you continue to live within your means every month. At the end of each month, transfer the amount you have saved to additional savings, prudent investments, or increased debt reduction.
2. Set aside at least 5 percent of your net monthly income for savings. Consistently increase this amount as you eliminate debt and find other ways to save.
3. Define a net-worth statement, and then update it every 90 days. Review your progress and make appropriate adjustments to your long-term financial goals.
4. Define a debt-elimination plan, and then review your progress every 90 days and make sure you are on track with your debt-reduction objectives.
5. As you successfully eliminate debt, transfer the amount you were paying to satisfy debt into savings and sound investments. This added amount will assist you greatly in achieving your long-term financial objectives.

Being financially fit is not contingent on the amount of money you make or your net worth. You do not have to be rich to enjoy this level of financial peace and happiness. Recent studies have shown that happiness is more a function of principles you live by than the amount of money you make. The only question is, Will you take the steps necessary to change direction and start down the path to financial fitness?

You Choose Your Financial Fitness
The financial position you are in today will not be the financial position you are in tomorrow—it will be either better or worse. Change is inevitable. You cannot stop change from taking place; you can only determine the direction it will take. You know better than anyone else the rewards associated with the way you currently interact with money. Achieving long-term financial fitness takes courage, discipline, sacrifice, and consistent effort, but the rewards can be extraordinary. What direction will you choose?