Personal finance

How Financially Fit Are You?

Fitness clubs are never more popular than December when determined hopefuls return again with dreams that this year will be the year that they get into shape. Most people want to lose some weight, build up some strength and increase their flexibility. But, by February most of those eager beavers, have already decided that, “Maybe next year would be better.”

The same thing tends to happen with our finances in April. As we start unboxing our receipts for tax season and we make promises that, “next year will be different. Next year I will be organized.” We want to shed some of that unwanted debt, build up an extra cushion just in case, and increase our financial flexibility to weather the changes in our uncertain economy. But, by May many have already decided that, “maybe next year is the year I will get financially into shape.”

Not so fast! What’s stopping you from getting into shape this year? Maybe it is the fear of finding out just how you really are doing. Just like your fitness instructor will run you through a set of drills at the gym, here are a few exercises that you can do to find out how financially fit you really are.

1. Get a Budget

Cash flow is the single most valuable resource you will likely have. It is your monetary food, your financial life blood. For most people, if there is any disruption in their income, they are quickly in serious trouble. Having a proper budget is key to understanding how much you are bringing in, how much is going out and how much stays in your pocket.

No only that, having a budget also ensures that you are spending money on the things that are important to you. Of course, you can have that new 3D printer, or take a trip to Cuba, but take care of the most important things first and track them with a budget.

If you are like 90% of the world who didn’t become accountants, then you might rather retire to a cardboard box with a “do not resuscitate” sticker on it, then create and follow a budget. But now there are dozens of tools that make budgeting easier like PocketGuard that do it for you without any input from you. So remember, you need a budget, but you don’t necessarily need to make it.

2. Shed Unnecessary Debt Payments

The first step to reducing debt payments is to stop paying high interest rates. If you have credit card or department store debt, move it to a lower interest debt like a line of credit. If you don’t have a line of credit, get one and then stop using your credit cards.

It is also important to keep in mind the “weight” that debt puts on you. Not all debt is equal and some have a higher psychological impact than others.

For example, maybe you owe your mother-in-law $1000 at 0% interest for when she fixed your car and you owe $5000 at 10% to your bank for your student loans. Even though the $1000 is less money and has no interest, every Sunday when she calls to ask how you are doing, you are going to feel the weight of that debt on your mind.

The numbers clearly say that you should pay off your student loans first, but you will feel 100 times better when you pay back Mummy Dearest than when your last e-check to the bank clears, so do what feels good first.

3. Sprint to Your Retirement

For most of us, we feel like retirement is far enough away that we sometimes wonder if it will ever come. But the truth is, retirement happens when your passive income starts to exceed your necessary expenses.

If you are going to rely on pensions, then that will be closer to when you turn 65…or 75…or if your pension is too small and your expenses too high, it may never come!

Most young people are shifting their view of retirement to one that they can create and start whenever they are ready for it. If you live well below your means, either because you earn a lot of money or you spend very little, then it can happen in just a few years, no matter how old you are.

So, don’t be afraid to skip that meal out this week and move your retirement party closer by one day.

Really, you can sit down now and make a plan to retire whenever you want. Then start saving and investing to meet that goal, rather than wait until you are old enough for someone else to make it happen for you.

4. Stay Protected

When it comes to finances you need to anticipate all unforeseeable events. Being ready for anything that might come along is a great feeling because if life teaches us one thing, it is that something will come along whether it be a car accident, disease or (knock on wood) a death.

Some of these things you will not be able to prepare for from the start, so it is important to get proper insurance to cover these situations. The primary need for insurance when you are young, is to replace the income of the primary earner in your family.

If you are young and single, you likely don’t need millions of dollars in insurance. Even $10,000 to cover last minute expenses is enough. But, if you are providing for 3 young children, a million dollars may not even be enough.

Do the math yourself and see how much you need to make sure that everyone is taken care of.

5. Stay Flexible

Life will change and so will your financial situation. A general rule of thumb is to spend less than you earn and save for a rainy day.

Following these fairly simple rules can make sure you are flexible enough to take care of yourself in any situation and help you get ready for whatever life throws at you.

So, someday when your 16-year-old son walks through the door late at night with that same look you had when you smashed up your dad’s car, you will be able to ask how he is doing, not trying to figure out how you will get to work the next day.

Featured image credit: FOTER


Vlad graduated from National Technical University “Dnipro Polytechnic” in Ukraine. He joined PocketGuard in April 2021 as a customer support manager with strong communicative skills. Vlad is respons...

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