We are all striving for something. Many of us strive for financial freedom, which to me means having the means to do what I want when I want.  And, to have a housecleaner.  But what is financial fitness?

Is it having control over your money?  Is it being able to pay your bills on time?  Is it having more money coming in than going out?  If you’re a business owner, is it having plenty of cash flow?

The short answer is yes, it’s all of those.  And more. We will talk about what financial fitness is, why is it important and some tips to help you stay financially fit.

• What is Financial Fitness
• Importance of Financial Fitness
• Components of Financial Fitness
• Want to Boost Financial Fitness? Start With the Easy or Big Wins
• How to Make Big Wins
• How to Boost Financial Fitness
• How to Create a Financial Plan

What is Financial Fitness

It is the ability to cope with all your expenses and live your life the way you want, without any financial worries.

For example, financial fitness will enable you to handle your loans, insurance policy premiums, monthly expenses and any unforeseen expenditure. It will also help you to create a plan that you can use to better deal with any financial need in the future.

Importance of Financial Fitness

Financial fitness is a matter worth focusing on. You can’t always be piled up in debt. There may be something or other that you may want to achieve as you start planning your life ahead.

Read Also: 9 (and Simple) Ways to Stretch Your Budget When You’re a Single Parent

By managing your money wisely, you can handle your monthly expenses, loans, insurance premiums and any other expenses in a stress-free manner. To achieve them all, you should be financially fit.

Let us understand, why financial fitness is so important.

Helps you to achieve financial security

When it comes to your security and your family’s, the first thing that comes to mind is money. Creating a fund for your future well in advance helps you to deal with any crisis as and when it comes.

Financial independence

Becoming financially independent takes a lot of time. Keeping a check on your cash inflows and outflows, making decisions on what you should spend and cut down on, and choosing saving and investment options are some of the factors that help you become financially independent. Doing so can help you make your money work for you.

Creating goals for each stage of your life

Priorities change with age, which means you should set your goals based on your age. These include goals like repaying education loan or home loan, building an emergency fund, setting up a retirement fund and so on. You should start figuring out ways to achieve these goals at a faster pace.

Now that we know the importance of financial Fitness, our next goal will be to create a financial plan. Here is how to do it.

Components of Financial Fitness

Protecting Your Finances

Saving up for a rainy day is one thing, but protecting that money is another. Even the smallest amount of money warrants some level of protection. Lately, there has been a slew of identity theft scams in which thieves swindle consumers out of their funds and their identity. 

It’s crucial to be diligent about how your information is stored and who you give this information to. Never confirm or update your personal information with anyone without verifying that they, in fact, are working with your bank.

Keep an eye on your bills and bank statements the moment you get them to see if there is anything suspicious or if you notice any potential errors. If so, be sure to report them immediately. 

Spending Wisely

Before you spend even a dollar, make sure that you’re making a wise decision. Comparison shop to make sure you’re getting the best deal on the same product or service. 

Your spending habits should be limited to what you can comfortably afford. Make sure that you are living within your means.

Keep a budget and stick to it. Keep track of your spending and make sure it aligns with your budget and your income. Give yourself a cap on what you can spend each week or each month and stay below that limit. Being diligent with your spending can help keep you on the path to financial fitness.

Knowing What’s in Your Paycheck

Having a secure job is a critical component to financial fitness. Without money coming in on a regular basis, it can be tough to pay your bills. But it’s critical to understand exactly what your paycheck is comprised of, which includes more than just your wages.

Just because you get paid $15 an hour doesn’t mean you’ll be pocketing that amount. Your take-home pay is what you receive after taxes and deductions have been subtracted.

Take the time to determine the specific deductions that are made, including income taxes, Social Security, Medicare, health insurance, contributions to your 401(k), and so forth. You may not have all of these. Each person’s standard deductions vary.

However, knowing what is being deducted will not only help you understand how much you’ll actually receive in net income, it can also help with both planning and building for a financially strong future.

Saving and Investing Your Money

The sooner you start saving money, the more you’ll be able to set aside funds over time. 

Open a savings account that you regularly contribute to. If you find it hard to manually deposit a portion of your paycheck into your savings account every month, consider having your deposits automated. Have a portion of your paycheck automatically deposited directly into your savings account. When your savings are automated, you literally don’t even have to think about it.

Make your savings a high priority. You are making choices in your budget and bill paying. Saving may not seem like a high priority because there is no penalty for not doing it. However, consider the penalties and fees you may incur if an unexpected bill is deducted from your checking account. Having a savings to cover insufficient funds suddenly becomes very important.

Borrowing Smart

From time to time, you may find yourself in a position that requires a small personal loan to cover an unexpected expense. Where and how you borrow that money is a critical factor to consider.

If you need to borrow, make sure you are capable of repaying the debt on time and in full. Your ability to do so can help to improve your credit rating and your potential to get other loans in the future.

Make sure you get the best deal when borrowing. Not only should you compare interest rates, you should compare all the terms and conditions too. Compare rates from lenders before applying for a loan.

Want to Boost Financial Fitness? Start With the Easy or Big Wins

When you think of what it takes to be physically fit, you may likely feel overwhelmed. Well, the same applies to financial Fitness, a lot of tthings are involved. From spending less than your income, having sufficient living expenses in liquid savings, and planning ahead for expenses, it’s hard to know where to start.

Just like how becoming physically fit requires continual effort, discipline and a shift in habits, the effort required in one’s journey to financial health is a ton of work. When it comes to spending less than your income, where does one begin?  

Easy Wins

Easy wins include changes that require very little effort, but can net major savings over time. Big wins include slashing costs on the three top spending categories: housing, transportation, and food. For instance, setting up a separate savings account for a specific goal, and auto-saving the amount each week. Another easy win is finding ways to reduce your utility bills and subscriptions.  

Why Focus on Easy Wins

You Get a Psychological Lift from the Get-Go 

If you’re pushing a huge boulder up the mountain, you’ll want to enjoy a win early in the game. Other shifts to improve your money situation, such as forming better spending and saving habits, take a lot more work and willpower. 

Saving $10 a week on gas by taking the commuter bus instead of driving to work a few times a week will net you $40 a month or $480 a year. Nixing a few digital subscriptions to online publications you no longer read could put $25 a month in your pocket, which tallies up to $300 a year. I use auto-saving for most of my goals, and I love checking my balances and seeing the number climb at a steady pace. 

Pointers on Scoring Easy Wins 

Automation is your friend. Get acquainted early on. If there’s one thing you can do today that will help you in the long run, it’s automating your savings. Set this up on a money management app, or through your bank.

As for cutting the costs on your recurring bills and recurring subscriptions, look for subscriptions you no longer use or have little value to you. For the ones you do still use, can you negotiate for a discounted rate, or find a less-expensive alternative? What about swapping the membership to the luxury gym for a cheaper one at another gym?

When looking for easy wins, be careful not to cut back so drastically that you feel deprived. If you do, you could suffer a bit of backlash—rebelling by overspending, or just plain feeling miserable. 

You Lighten Your Cognitive Load  

A study by the Common Cents Lab on why people might struggle to save and manage money throughout each pay period reveals that a greater cognitive load posed a barrier. Needing to check your balance every day, and weighing all your spending options against each other can take a mental toll. 

Let’s say you’re deciding on whether you should fork over a few bucks for a cup of coffee and a pastry at a coffee shop on your way to work. Financially speaking, it might only cost you a few bucks.

But even the smallest transactions can send you spiraling down the rabbit hole of mental money math. If you’re trying to make the money sitting in your bank account last until the next payday, or save a bit of it, a litany of considerations might be running through your head. 

You might need to gauge what bills you need to cover in the next week. What other unexpected costs might creep up? Can you ultimately afford spending this, or should you practice restraint so you can save some of that paycheck? All those questions require a ton of mental effort. 

If you make the effort in saving with either big or easy wins, or do something simple like automate your savings, you’ll have less decision-making to do. You won’t have to wrestle with the constant stream of questions. Instead, you can feel okay spending that money, because you’re already doing other things to save.  

How to Make Big Wins

There’s only so much time you want to invest if you want to put into making your big wins. Saving on your grocery bill might come a little easier than major changes to your housing or means of transport. 

As for what to focus on within the big wins, I say keep it fun. Are you a natural bargain hunter? Seek coupons and sales on your groceries. If you want to net significant savings and are willing to make more drastic cuts in your housing or transportation, look at the cons and pros.

Build Momentum 

For instance, what are the trade-offs of getting a roomie or AirBnbing one of the rooms in your home, or in making the switch to a one-car household? Is the money you’ll potentially save worth the trade-offs? 

As the journey to having a positive relationship with your money and developing strong financial fitness is long and hard, netting wins early on will keep the momentum building.

Results are what keep us going. There’s no point in going to the trouble of cutting coupons, auto-saving each week and brown bagging it to work if you don’t see the money piling up in your bank account. And in turn, the freedom to spend that money on something meaningful or intentional. But you can’t flex until you have financial muscles. 

Not only will your wallet thank you, but you’ll also enjoy a clearer headspace and feel good about your daily money decisions.

How to Boost Financial Fitness

Discover and Track Your Net Worth

Calculating your net worth is like giving yourself a fitness test. Just as a fitness test assesses your current level of physical fitness, your net worth gives you an overall picture of your financial fitness.

Calculating your net worth, which is the total value of everything you own minus the total of everything you owe, doesn’t have to be time-consuming and complicated. The GOKONG app calculates your net worth automatically. All you have to do is connect all your financial accounts and add information on any other valuable items you own.

If you have a negative net worth, don’t be discouraged. Set some financial goals that will transform it into a positive net worth over time.

If your net worth is slightly positive, build on that foundation by increasing the value of your savings, investments, real estate, vehicles, paintings and other collectibles.

GOKONG gives you personalized recommendations on how you can improve your net worth, making you financially fitter each time you follow a suggestion.

As you use the app to track your net worth over time, you’ll see exactly how you’re becoming financially fitter.

once you’ve started making progress towards a goal.

Reduce Unnecessary Spending

When improving your physical fitness, you’re more mindful of what you eat and drink, reducing your consumption of snacks, junk food and alcohol.

In the same way, becoming more aware of exactly how you spend your money will help you improve your financial fitness.

You can do this by tracking all your expenditure over at least one month. At this stage, don’t try to change your current behavior. The first step is to become aware of exactly where all your money goes.

The next step is to look at your results and see where you could spend less without it affecting your life too much. Then, make a budget based on your new spending pattern for the next month.

It’s best to start by cutting back on just a few unnecessary items at first. When you see the benefits, you’ll be encouraged to make further changes, so that you keep more money in your pocket and invest it in improving your net worth.

Live on a Budget

A budget is like a sensible eating plan. A sensible eating plan gives you guidelines on how much of certain foods to eat, while a budget tells you how much it’s a good idea to spend in each category so that you have more money available to improve your financial fitness.

Once you’ve lived on a budget for a month or two, review it to see if you can reduce your spending further in certain areas.

Don’t make it too tough, though. Consistency will bring you closer to your goals. Just as you increase your physical fitness gradually through consistent action over time, you improve your financial fitness gradually by taking a series of small steps in the direction you want to move in.

Minimize Your Debts

It’s always good to keep your debts in check or even minimize them, so that you can start to increase your savings and investments.

If you have credit card debt or other debts you’d like to pay off, make a debt repayment plan. Set yourself a small initial goal, such as paying off your smallest debt.

Then move onto a tougher goal, such as paying off a larger debt with a high interest rate. The important thing is to keep it realistic. The important thing is to keep it realistic. That will help you avoid the frustration of failing to meet your goals.

Every time you reduce or pay off a debt, your net worth will increase. It’s easy to check your net worth regularly using the GOKONG app. You’ll be delighted by how your financial fitness is improving over time and it will motivate you to continue.

Plan Ahead for Large or Unforeseen Expenses

Often people pay for large or unforeseen expenses with their credit cards because they haven’t planned ahead. Of course, you can’t plan ahead for an unforeseen expense, but you can save a certain amount of money in an emergency fund, so that you have a pool of money available if your roof starts leaking or you need emergency dental treatment.

If you have no emergency savings or only a small amount, plan to change that by brainstorming all the ways you can add money to your emergency fund.

Even if you only have room in your budget for transferring a small amount into your emergency fund each month, it’s still important to do so. Once you’re in the habit of adding money to your emergency fund regularly, you’ll be surprised how often you find a way to make it grow.

Just as a runner would plan ahead for a marathon, gradually increasing their fitness along the way, you can plan ahead for future expenses, gradually increasing your savings along the way.

Don’t Give Up

Dedicated athletes don’t give up on their goals just because they have a short-term setback such as an injury or a race they didn’t win.

Don’t give up on your financial goals if you have a short-term setback. For example, you might not be able to pay anything into your emergency fund one month because you receive an unexpectedly high tax bill that must be paid immediately.

If something like this happens, as it inevitably will from time to time, try not to let it get you down. Just start again next month. It may take longer than you expect to improve your financial fitness but don’t let a short-term setback derail you.

Imagine Your Future

Imagine feeling safe and secure in the future. Your net worth is strongly positive. You have enough money in your emergency fund to cover your family’s total expenses for at least a year. Your retirement savings are growing each month. Other investments are yielding good returns.

In your current position, this future may seem unattainable. But it’s not. Anyone can build such a future, step by step, by improving their financial fitness gradually and tracking their progress regularly.

How to Create a Financial Plan

Importance of Financial Planning

Financial planning is necessary for multiple reasons. Some of them are:

Track expenses and eliminate unwanted spending

Track all your expenses and figure out the problem area. There may be a number of things on which you are spending unnecessarily. Exercise some restraint when it comes to these expenses and remember that every single dime is important.

Well-defined needs and goals

Buying a house in the next 5-years can be termed as a well-defined goal. To achieve this, you must have your finances in place. Saving up for it by managing all your essential expenses is what will make you achieve this goal.

Saving and investing

When it comes to managing your finances, saving and investing play key roles. Making investment choices according to the goals you want to achieve is crucial. By creating a financial plan, you can focus on your priorities and achieve them in an efficient way.

Achieving Financial fitness

How do you become financially fit? Well, you can start by inculcating a few of these healthy financial habits:

• Studying your current financial situation and rectifying mistakes, if any
• Saving 20-25 percent of your total income
• Investing in various financial instruments; mutual funds are one of the best ways to go
• Paying all your bills on time to avoid any additional charges or late fees. This helps you maintain a healthy credit score
• Keeping an eye on your debt. The sooner you repay it, the lesser the interest you will have to pay for it
• Creating financial goals
• Building an emergency fund
• Planning for your retirement right now

Healthy financial planning will help you to meet all your needs and inculcate these habits will help you reduce stress in the future.

How to Create a Financial Plan

Below, you’ll find ten steps to create a solid financial plan.

1. Write down your financial goals

Having financial goals is the foundation for your financial success. After all, you have to know what you want to accomplish in order to actually accomplish it. However, when it comes to setting goals, you want to make sure your goals are well defined and prioritized accordingly. It’s great to have big, lofty goals! But be sure to break them down into smaller chunks. That way, you’re not overwhelmed trying to accomplish them and you can easily measure your progress.

2. Start an emergency fund

It’s also really important that one of your goals includes a plan to deal with emergencies. You want to make sure you are prepared to weather a storm. Otherwise, you’ll just end up in debt again.

3. Pay off debt

Sadly, you can’t really kick-start your financial future if you’re carrying a ton of debt. Between sky-high interest rates, large minimum monthly payments and the damage lots of debt can do to your credit score, you’re better off paying your debts first. Create a debt pay-off strategy and be patient but consistent when working toward becoming debt-free.

4. Create a plan to invest

If you are serious about building wealth, then you’re going to need to put your money to work for you. This is where investing comes in. However, before you put any of your hard-earned money into investments, it’s important to have well-defined objectives. Think about what the investment is for when you’ll need your money and what your risk tolerance.

Investing is a long-term activity, so you have to commit to it if you really want to see your money grow. Worried that you’ll need your money in the short term? Well, that’s what your savings accounts are for; to put aside your emergency savings and money for your short-term goals (i.e. money you’ll need in 5 years or less).

You also want to make sure you have a basic understanding (at the minimum) of any investment you put your money into (e.g. the stock market, real estate or small business). Your plans to invest should be included as a part of your monthly budget where you allocate a certain percentage of your income toward your investment goals. 

5. Get the right insurance

After working so hard to earn your money, the last thing you want is an unplanned occurrence to wipe you out. Insurance is essentially your back-up plan that will protect your assets in the event a life circumstance happens that requires a large amount of money to resolve.

Your insurance coverage should include health, auto, disability, life, home or rental, and business. Basically, you want to protect anything of major importance that has a high value to ensure that you (and your loved ones) are protected financially.

6. Create a plan for retirement

In order to have the lifestyle you dream of in retirement, you need to plan adequately for it. You’ll need to determine how much you are going to need to retire, of course taking inflation into consideration,  and how you plan to save and invest in advance for that period of your life.

While retirement might seem like a lifetime away, it’s never too early to start!

7. Plan for taxes

Taxes are annoying, but they’re certainly not going away anytime soon. So make sure your long-term income projections include taxes. Not planning for taxes can impact your cash flow in a major way.

In addition, you definitely want to look into tax savings investment options and stay up to speed on any relevant tax deductions you can apply to help you save money on tax payments. You can plan to sit with a tax accountant or financial planner to help ensure your plan for taxes is adequate.

8. Create an estate plan

Estate planning is not something a lot of people like to think about, but it’s essential! It allows you to determine exactly what happens to your assets after you are gone. It involves listing out all your assets, creating a will, and making it accessible to the people who need to have access to it. A financial planner or estate lawyer can help you set things up correctly.

9. Review your plan frequently

Once you have your financial plan outlined and churning along, it’s important to review your plan frequently and make the necessary adjustments if your goals or the circumstances around your life change.

For instance, maybe your insurance needs change, your risk tolerance changes, or you get married or have kids. At a minimum, you want to check in on your overall financial plan at least every six months.

When you check infrequently, it’s easier for you to deal with unplanned life occurrences, bounce back from setbacks and accomplish your financial goals.

Think about what you do to maintain your personal health – You brush your teeth and shower regularly to keep yourself clean and avoid unnecessary illnesses because we all know that falling sick can lead to other health complications and you definitely don’t want that. And also because you do it so often, it’s now part of your everyday health maintenance habit – well, the same applies to your finances!

10. Stay the course, avoid overspending and learn from your mistakes

Your journey to financial independence won’t always be easy. There will be some tough days, weeks and even months. Pursuing a goal of financial independence that’s very much tied to delayed gratification is not always fun, but it’s completely doable. Have a solid plan for your finances, be disciplined and avoid overspending. You’ll find out how great you’ll feel when you really make a concerted effort to stick to your budget.

As you work on your finances, you may still make mistakes with your money, and that’s okay. Sometimes you might be unable to resist the urge to buy something that isn’t in your immediate budget. And sometimes you will feel like ripping your entire financial plan to bits because it just doesn’t seem like fun.

Financial fitness is a daily practice that requires consistent effort. It is living in a way that does not exceed income earned, or put financial strain on savings goals. It is making choices that are in alignment with priorities, and being generous with your wealth.