A Review of the Six Steps to Financial Fitness

There are a lot of wealth “systems” out there. Some are just plain bogus. Others, like Dave Ramsey’s Financial Peace University, are legitimate. Recently, I came across one put out by the FINRA Foundation and the Florida State University. Called the Six Strategies for Increasing Financial Fitness (pdf), this short brochure is designed to help focus get back on track financially.

The idea of financial “fitness” struck me as strange at first.  But I believe the author’s analogy between physical fitness and financial fitness is apt.  They say that while physical fitness helps you become more aerobically efficient, financial fitness helps your money work more efficiently.  Similarly, financial fitness, like physical fitness, requires an ongoing effort.  Since we are living longer, the authors stress that it’s increasingly important to build financial fitness in order to ensure we have the funds needed for retirement.

So I thought it was worth reviewing the six strategies for increasing financial fitness:

Strategy 1 – Communication

If you live with a partner, communicate openly and candidly about your household’s finances.  The Florida State authors found that couples who communicated about finances and jointly developed strategies were more financial fit.  They also benefited from sharing knowledge bases.

Strategy 2 – Ask Your Employer

Don’t be afraid to inquire with your employer about all the financial and retirement plans offered by your company or place of work. In addition, ask what kind of professional financial advice and counseling they can provide.  Although some employers don’t offer these services, they might be able to direct you to someone who can assist you.

Strategy 3 – Budget for Retirement

Financially fit households tended to frequently reassess how much money they project to need for retirement.  You should come up with an estimate now and regularly reevaluate your figure.  The non-profit organization, the Employee Benefit Research Institute, provides an online tool to help you create your retirement estimate.  You can also turn to a certified financial planner to assist you.

Strategy 4 – Estimate Future Savings

This strategy is similar to the previous one except you estimate how much money you will have as you approach retirement.  If you can create a rough estimate of how you will be saving in the years ahead, you can determine whether you need to alter your behavior or saving habits.  You should frequently reassess this estimate and consult a financial planner if you need help.

Strategy 5 – Maximize Savings and Earning Interest

If you don’t already have a savings account and retirement account, you should open them now.  The most financially fit households regularly put a portion of their paycheck into a savings or retirement account, even if the amount was relatively small.  If you haven’t yet, you should get in the practice of setting aside part of your paycheck for savings and retirement.  Financially fit households also tended to save to purchases expensive items such as cars.  This reduced the amount they had to borrow and the interest they would inevitably have to pay on a car loan.

Strategy 6 – Minimize Debt and Paying Interest

In order to reduce and minimize debt, you should make it a practice to pay your household bills on time and your credit card bill in full each month.  Although it might be tempting to charge that wide-screen HD television on your credit card, a good rule of thumb is don’t charge any amount that you cannot repay in full at the end of the month.

The second way to reduce the amount of interest you pay is by paying slightly more than your mortgage principal each month.  If your mortgage company allows this activity, it could mean paying off your mortgage earlier and avoiding significant costs in interest payments.  The last way to avoid debt and interest is by building an emergency fund.  This fund should cover critical, unanticipated expenses. For instance, if your car breaks down and you require a rental vehicle or costly repair, you can use your emergency fund instead of borrowing money to cover these unforeseen costs.  That way you avoid paying unnecessary interest fees.

In the end, the 6 Steps to Financial Fitness are not revolutionary. But they are a good reminder.

Topics: Personal Finance

2 Responses to “A Review of the Six Steps to Financial Fitness”

  1. Remember, if you are not conferrable asking your employer (if you are ask HR), you can check your employee handbook as well as many employers have an employee only part of the webpage. Looking on my fiance’s employers website, we found out we were eligible for a 19% discount on our cell service as well as other benefits.

  2. No matter how rigorous your savings goals are, every diet needs a little wiggle room. You worked hard for your money and you should enjoy it now and again. Give yourself a set amount of money you can use to “splurge” on things you might not need but really want. If you remind yourself that you can buy that special something if you save a certain amount, you may be less tempted to waste money on items you don’t really want.

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