Becoming Financially Fit

At one time or another, we all desire to be more fit. Running, swimming, biking, weights, whatever the mode of operation, the goal is to look and feel better. Through intense commitments to get fit, small amounts of progress can be seen in short order. Those tiny doses of progress are important to our psyche. It’s important for us to be fit, we feel better, look better, sleep better, and have a more positive outlook on life after a few weeks of continuous movement. I believe there is another facet to being fit that matters just as much - being fit financially by getting in financial shape through those same tiny doses.

What in the world is financial fitness? Should my checkbook begin jogging? I wonder how much my savings account could bench-press? I have no answers to offer for the later two questions, but I do have an opinion on the first. Financial fitness is not your checkbook’s 5k time, but rather an inventory of the financial components that make-up your fiscal health. Your budget, emergency fund, life insurance, retirement savings, and level of debt are all vital categories that reveal how fit or unfit your financial future is.
Budget
Most people view the budget as an intense system of hieroglyphics that can only be cracked by someone with specialized training. Truth be told, the budget is the easiest step in achieving financial fitness from a monetary perspective, but just like jogging that first mile, it’s the most difficult starting point. Your budget should start with income at the top of the paper followed by your “musts” (home, food, lights, water, gas) followed by your “wants” ( phones, cable, vacations, etc). The point is to subtract what you intend to spend from your monthly income on paper prior to the first paycheck arriving. This very purposeful step allows you to stop being surprised by our money and quit wondering where it’s going.
Emergency Fund
Isn’t this what credit cards are for? NO!!! Credit is not there for emergencies, in fact, lately, debt from revolving credit loans has caused more emergencies than it has ever solved. Once you’re debt free but your house, 3-6 months of expenses should be a sizable emergency fund that can cover periods of limited or no income. I caution to avoid keeping thousands in the bank while owing thousands to a bank. Paying an auto loan while you have cash in the bank is like saying “I took a loan out on my paid for car to get  money I can put in the bank”. No one would do that, so in short, pay debt first and save second.
Life Insurance
Americans remain dangerously under insured. Life insurance is a simple way to plan for the security of your family in the event you pass away. Death of a loved one creates enough trauma for a family, do not let financial drama cause more heartache as your family tries to pick up the pieces and continue living. Three to four times you’re income is a good rule of thumb when shopping for 30-year, level term insurance. Stay-at-home parents need to be insured as well to cover the cost of child care should you lose them. Avoid life insurance policies that offer a savings vehicle or investment option, these type of policies commonly known as whole life insurance generally comes with a higher cost and delivers less than expected investment returns.
Retirement Savings
After you are debt free (everything but the house), 15-18% of your income should be in a retirement plan. Whether it be pension contributions, 401K, or a Roth IRA, max out your contributions at the limits set by your company or IRS rules. For example, if your company offers a 3% match on your 401K, invest up to the match and then put the rest into a Roth IRA which could offer a better return on your investment. Do not rely on your pension or social security alone. Both are likely to go through a major makeover in the future. Defined benefit pension plans are vaporizing quickly, and social security is racing towards insolvency.  Be realistic and avoid investing too little while preparing for your future.

The workout routine that promises a high level of financial fitness is to budget, wipe out debt, plan for emergencies, be insured, and plan for your retirement. Avoiding any of these key steps is equal to eating chocolate cake while on the treadmill.