Financial Fitness - It Means Paying Attention

No matter what level an athlete competes in they set goals and keep track of their performance. The same goes for financial fitness. No matter what level of financial fitness you find yourself in right now there are areas to attend to and little things that can make a difference in your overall financial performance.

Surviving

Debt is the most likely issue in this level. Even if you are breaking even at the end of each month your financial situation is likely keeping you from meeting your goals. The main priority is getting out of debt. How do you do that?

First, look at all of your debt and determine what interest rates you are paying. One of the things keeping you in debt is interest. Work on paying off credit cards with the highest interest rate first. Make sure you keep paying at least the minimum payment on your other cards and loans as you concentrate on the higher interest one. You do not want to negatively affect your credit rating by failing to make payments. If you have a fair amount of high interest debt, think about applying for a consolidation loan which will have a lower interest rate. Extra cash flow can be used to meet your monthly expenses and get you started on your emergency fund.

The next task is to get a handle on your spending habits. You need to understand how you spend your money. It is time to track your expenses. This also means understanding when you are using your credit cards. Credit card purchases are easy – start thinking of them as cash purchases. Impulse buying can get you into trouble and completely blow your budget. Once your financial situation improves you will be able to use credit and pay it off when the bill comes in. But until then, once a credit card is paid off – cut it up or lock it away. Speaking about your budget – cutting back on some unnecessary expenses is critical as you concentrate on paying down debt. Developing a spending plan is a must at this level. There is no question this part is hard but the good news is that the payoff is not too far down the line.

Stable

Your debt is at a manageable level, and you have some savings. You are less likely to be completely wiped-out should a financial emergency occur. Look at your fitness tests – what areas are still in the surviving category? Those are the areas that need to be worked on first. So if your cash flow is still tight – look at spending habits. There are likely a few areas which can be cut in the shorter term.

At this level your focus is on maintaining good spending habits and building your savings. Paying off debt is always important for financial fitness. Developing both a spending and savings plan is a must. Even if you have a decent cash flow, a budget will help you get to the next level which is really all about having savings. Any extra money should be put into your emergency savings until it is fully funded. This type of savings is to be used if there is an interruption in income or illness. The minimum is three months of living expenses, but to be fully funded six months is recommended. Once that is achieved move on to longer term savings goals like education and retirement.

Secure

Phew! You have made it. However, once you reach your physical fitness level you do not get to sit on the couch and eat doughnuts, being financially fit is no different. Maintaining your financial fitness level is critical and improving financial performance is the focus.

Good money management is a habit for you, so maintaining good spending practices is probably not an issue. If your savings need to be used for any reason the immediate focus is topping up funds where necessary. Once children are finished their education you want to think about another savings goal. Protecting your assets is very important, so make sure that you have adequate levels of insurance and are up-to-date in your tax and estate planning. Dependent on your life stage your portfolio needs to be reviewed annually to make sure you are comfortable with the amount of investment risk you are taking. Working with your financial advisor to make sure you continue to be financially secure is a must.

Get Started Today

Try to remember your current fitness level is a measure of your past, it does not mean it is your future. So even if you are in a bad spot, rather than focus on the negative, figure out what happened, what needs to change and move on. As your financial advocate we are committed to helping you each step of the way. If you need a hand or just want a second opinion, gather all your information (even if it is in a shoebox) and come in, give us a call or drop us a line.