Financial Fitness includes mindful spending, low and reasonable debt, saving for the future and donating to worthwhile causes.
Financial health goes beyond dollars and cents. It includes a healthy relationship with money, a lack of money anxiety and a sense of financial fulfillment. Follow these 10 steps to increase your financial fitness.
1. Be honest about where you are.
It’s human nature to avoid pain, but denying a problem will only make it worse. Statistics show that more than one-third of Americans purposely avoid thinking about their damaged financial lives. Until we get honest with ourselves, we are unlikely to improve our financial health. To become financially fit, it’s important to know things like:
- Your credit score (what is it, what does it mean and how do you get it?)
- How much you owe and to whom (are you paying rent, insurance, everyday expenses?)
- How much you have in savings (are you spending every cent you have; how much should you be saving?)
- How much you have saved for retirement or when to start a retirement account.
- Where your investments are held and how they are allocated.
Take Dr. Brad’s research-based financial health test for a quick measure of your current financial health.
2. Know where you want to be.
Changing habits can be tough. To stay motivated, keep your eyes on the prize. What would a healthy financial life do for you? How would it make you feel? What would you have? Where would you go? Identify your goals around your career, education, retirement someday, travel, health and family. Where do you want to be in five years? In 10 years? The more specifically you identify what you want, the more energy you will unleash to get yourself there.
3. Beware of your thoughts.
Are you an over spender? Do you neglect saving? If you answered “yes,” you are an average American. Perhaps that helps explain why 80 percent of Americans say money is the No.1 source of stress in their lives. To change bad habits, it is often essential to identify the beliefs that underlie them. Our financial behaviors make sense when we understand our beliefs about money. These beliefs, called money scripts, are typically outside our conscious awareness, but they drive all our financial behaviors. Some problematic money scripts include: “more money or more things will make me happier,” “I can never have what I want, so I might as well get what I can when I can.” When we base our financial lives on erroneous or incomplete beliefs, we set ourselves up for failure.
4. Forgive yourself.
Our feelings and beliefs about money don’t develop in a vacuum. We are taught them or we arrive at them when trying to make sense of confusing situations. As children, we are prone to making incomplete conclusions. For example, if our family is rich and unhappy, we may conclude that money led to our unhappiness, when the discontentment could be better explained by other issues. As adults, we rarely return to our past, identify our money scripts, examine them or change them. As a result, their control over our financial lives can be insidious. So regardless of your current financial situation, have compassion for yourself. Most likely, your behavior toward money is a result of where you came from. The good news is, the more you know about money management the more you are empowered to change.
5. Commit to change (if you are ready).
Change takes time, energy and effort. To change, we must believe it is important to do so. To examine whether you’re ready to change, write down the pros and cons. What are the pros of staying where you are, such as continuing to buy what you want, travel or not have to think about finances (at least for a while)? What are the cons of continuing to do what you are doing, such as spending your money on entertainment instead of being able to pay your car insurance? Or getting into credit card debt so the $40 shirt you bought becomes an $80 shirt due to interest? You will commit to change only when your list of benefits outweighs your list of reasons to stay right where you are. Even if you are not ready to transform your financial life, consider taking step six anyway. When you are ready to commit to improving your financial fitness, you are well on your way.
6. Apply some "financial first aid."
In health care, first aid is meant to prevent further harm and promote recovery. If someone is bleeding, first aid may involve applying pressure to the wound. Instead of losing blood, over spenders bleed money, and much of it is borrowed. Financial first aid involves putting a stop to over spending and oftentimes halting the use of credit cards. Shop with cash to help avoid impulse buying. It might seem like a small action, but it can be a giant leap toward financial fitness. Studies show we spend 30 percent less when we pay with cash. So take action now to stop the bleeding.
7. Make a plan.
To stay on top of our finances, we need a plan for spending, saving and giving. A spending plan allows for meeting financial obligations and needs while allowing for saving and giving. Your plan may include reducing spending in some areas while setting aside more money in others. Once your plan is in place, track it. You may find some checking and budgeting software helpful. You may choose to save 10-30 percent of your income. You may choose to set up direct deposits to your savings account to ensure you pay yourself first.
8. Take action.
It takes about 30 days of practice before a new behavior becomes a habit. With a plan in place, you can begin tracking your spending, finding ways to save money, and spending money on the things that matter most. Living a life in which your financial behaviors match your values and goals feels good. Being conscious and purposeful about spending can help us appreciate and enjoy life more.
9. Expect challenges.
It is important to know that you may slip back into old habits. For the most important changes, relapse is common and should be expected. The important thing is to not beat yourself up about it. Get back on track as soon as possible. See bumps along the way as learning experiences.
10. Ask for help.
The journey to financial health can be long. There will be setbacks along the way. If you find yourself repeating mistakes or having trouble following through on your plan, seek the help of a parent or another trusted adult.