Financial Fitness for Life in 4 Simple Steps
Financial fitness is more than just staying out of debt and saving for retirement. It’s about being prepared to meet life’s challenges in a way that keeps your financial future on track. In short, financial fitness is all about arming yourself with the tools, knowledge and discipline necessary to thrive in today’s financial world. Whether you’re just beginning to understand how money works or you have years of experience managing your personal finances, everyone can stand to improve their financial fitness. After all, who wouldn’t want to be better equipped to handle unexpected expenses, save responsibly for retirement and other long-term goals while avoiding unnecessary risk ? Keep reading for how you can develop financial fitness for life in 4 simple steps.
Pay off your debt
First things first: tackle your debt. It’s easy to get caught up in the day-to-day hustle-and-bustle of life, but if you don’t make tackling your debt a priority, you can kiss your financial future goodbye. There are two types of debt: good and bad. Good debt includes any form of debt that will earn you money, such as a mortgage or student loans (if they help you earn a degree and launch you into a well-paying career). Bad debt is any debt that doesn’t earn you money, such as credit card debt or an auto loan. Credit card debt is the easiest type of debt to fall into and the hardest to get out of. In 2022, the average American credit card debt is $5,221, according to Motley Fool. This is a serious problem, because the interest paid over the life of that credit card balance is reducing your bottom dollar, so you’re essentially losing money. It’s like a leaky bucket, and your hard-earned cash is slowly dripping out.
Revolving credit card debt is not a smart financial move, and you must eliminate it. If you have credit card debt, your first step should be to get out of it as soon as possible. Credit card debt is incredibly expensive—some cards have interest rates as high as 30%! Ensure to talk with your creditors and see if they offer any type of forgiveness or reduced rate (Learn how HERE). Many will work with you, but they won’t if you don’t ask them.
If you’ve exhausted all options for trying to pay off your credit card debt, it might be time for you to look into a debt consolidation loan or low interest credit card to make balance transfers. While it’s not advisable to open a new line of credit, the key to making this work is cutting up your credit cards after transferring your debts, and then focusing all of your energy on paying off the new loan or credit card balance with every available penny you have. The key to making this work is building momentum and watching your bad debt reduce to zero. With PersonalLoans.com, you can get approved for any amount from $1000 to $35,000 with a relatively low APR as compared to most lenders. Check out PersonalLoans.com and see if they can offer you any savings and peace of mind by consolidating all your debts into one.
Another invaluable, and often underutilized option is to simply make more money. If you have the discipline and the will to put in some extra hours, there are plenty of opportunities to make extra cash with a side hustle. Learn more about at-home jobs, self-employment ideas, and other side hustles HERE. Bottom line is that you must focus and remain disciplined to eliminate debt. Consistency and effort will win the day and help you build momentum. The question is “how fast,” which conversely relates to “how bad do you want it?”
Have an emergency fund
We’ve all heard the saying, “Life happens.” Financial crises are a reality for everyone at some point in their lives, so it’s important to be prepared. Always have an emergency fund of at least $1000 to start. This money is to be used ONLY for pop-up surprise expenses, like a broken fridge repair, an electrical job, or a new alternator or brake job for your automobile. If you have $1000 already saved for these types of unplanned expenses, the next goal is to save at least three to six months’ worth of living expenses available in case of a big emergency, like losing a job or needing to replace a car. An emergency fund is the best way to protect yourself against the many financial emergencies that come up in life. This fund should be separate from your investment accounts, as you will want to be able to access it without being penalized. A savings account is one of the safest places to store your emergency fund.
Make a plan to achieve your financial goals
What do you want for your financial future? Do you have a college fund for your kids? Do you have a dream vacation planned? Do you have enough saved up for retirement? Whatever goals you have for your financial future, make a plan to achieve them. Having a financial plan to achieve your goals is crucial. The steps to do this are as follows:
Set up a budget (Learn how HERE).
From the budget, identify areas to cut back on spending.
Have $1000 set aside in an emergency fund kept in your savings account.
Apply any remaining cash towards your bad credit in order to eliminate that debt ASAP. It’s time to work, not take a vacation.
After your debt is paid, you can take a breath and start saving for your financial future.
Use your extra money from paying off all your debt to build a savings of 3-6 months living expenses. This fund will be your living expenses in case you’re laid off, and keep you from accumulating debt again.
With debt paid in full and 3-6 months living expenses saved, it’s time to start saving for your financial future. Automate your cash flow towards savings, retirement, college fund, new car fund, etc.
The reason these steps work is that you generate momentum with your finances by focusing on one thing rather than a million different things that will pull you off your ultimate goal of maximizing your dollar. If you’re in debt, you’re not dealing with a math problem, but rather an emotional one, because money habits are usually tied to emotional spending behavior. If you were doing math, you wouldn’t be in debt.
By having a plan, you will be better prepared to save for the things you want out of life. Having a financial plan also allows you to set financial goals for yourself. If you have financial goals set for yourself, you will be more likely to achieve them.
Take care of your physical health
There’s a lot of advice out there that claims you should “push your savings to the max” and “invest as much as you can in your retirement account,” but there’s one important thing that a lot of people forget to factor in: there are other important goals in life besides just saving for retirement. Nobody is guaranteed a long and healthy life. You can set yourself up for financial success, but if you don’t take care of your health, it won’t be enough. Always have a plan for long-term care insurance. If you have dependents, you also need life insurance to ensure that they are taken care of financially if something happens to you. And above all else, take care of yourself and your family by incorporating healthy, nutritious foods at each meal and some physical activity each day. Taking ownership of your health and wellness will help ensure to prevent disease and sickness from overtaking you. As they say, an ounce of prevention is worth a pound of cure.
Your financial future is determined by the choices you make today. While it may be tempting to put off saving for retirement or setting aside money to pay off debt, these things must be done in order to build a stronger financial future. Financial fitness is more than just staying out of debt and saving for retirement. It’s about being prepared to meet life’s challenges in a way that keeps your financial future on track.