Financial fitness looks different for everyone because everyone has different life goals they want to achieve. Regardless of your current situation, however, the steps to achieve financial fitness are quite consistent. Applying these steps consistently over the long-term can result in significant life changes. Here are 7 essential steps to achieve financial fitness.
Set SMART Goals
The first step to improving your financial fitness is to set the personal finance goals that you’d like to achieve. For the goals to be impactful, motivating and achievable you need to ensure they are SMART goals. SMART stands for:
- Specific
- Measurable
- Attainable
- Relevant
- Timely
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Not A SMART Goal
I want to save more money.
SMART Goal
I want to save $100 every month for 6 months so that I have $600 for my emergency fund.
Find out more about creating personal finance goals [Personal Finance: Setting Goals].
Understand Your Spending Habits
Understanding your spending habits is probably the most underrated step in achieving financial fitness. In order to master this step a budget must be used. A budget can aid in identifying where you’re spending your money and how much of it is being spent. By studying your bank statements or using a money management application, you can track your usual spending. After getting a sense of your natural spending habits, create a budget with spending limits that will allow you to reach your savings goals.
Find out more about personal budgets [4 Reasons Your Budget Isn’t Working].
Make Saving A Habit
People who have achieved peak financial fitness make saving a habit. A good way to do this is to automate your savings. You can create settings in your account to send a portion of your income to your savings accounts each month. This method of saving works for all types of accounts that one uses to save. It could be your retirement account, high yield savings or your rainy-day funds.
Manage Your Debt
There are well known studies that support the idea that mismanagement of debt is one of the leading contributors to financial ruin. This is because debt is easy to get into, but it can be very difficult to get out of. It is not practical to advise the average person to avoid debt all together. However, one can manage their debt in a responsible way that increases your financial fitness. Firstly, avoid excessive debt. If it will not enhance your life, then get it when you can afford it without debt. Secondly, pay the full balance on credit cards at the end of each pay period. Credit cards are reputed to have the highest interest and fees. Finally, always pay above the minimum payment. This way your principal decreases faster and you’ll end up paying less interest in the long run.
Find out more about [Effects Of Poor Debt Management In Your Twenties].
Avoid Lifestyle Creep
Lifestyle creep occurs when the cost of maintaining your lifestyle increases significantly whenever your income increases. Instead of trying to keep up with the Jones, increases in income should either be saved or spent in a way that improves your quality of life. By keeping your spending fairly constant over time you’ll find it easier and faster to achieve your financial goals. Maintaining a steady lifestyle is an important step to achieving financial fitness.
Become A Smart Investor
A sure way to secure a financially secure future is to invest your money. You should be investing in assets that appreciate in value over time or periodically pay dividends. There are many low risk and low expense funds that are very attractive for beginner investors. Funds offer fair market returns with little to no involvement of the investor. They are also diversified. Like your savings, your investing activity should be automated. Just remember, you’re investing for the long-term. Do not get distracted by the daily market volatility.
Continue Learning
People who have taken the steps to achieving financial fitness never stop learning. As the economy, job market and technology change, so will the opportunities available to achieve your financial goals. Learn as much as possible about personal finance and strategies you can take to secure a financially fit future. This means learning the principles and best practices around personal finance. If possible, connect with professionals from your bank who can help you to develop a plan to meet your financial needs.
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