Five Steps to Financial Fitness

Five Steps to Financial Fitness

Not unlike physical fitness, becoming financially fit takes planning and does not just happen; you must exercise those muscles day-by-day and keep your eye on what you want to achieve.

1. Know where you are financially.

In order to move forward, you must know exactly what your current financial situation is. Often people are reluctant to get the status quo, because the thought of knowing fills people with fear. Instead of using this information to give yourself that proverbial kick in the butt, it has a paralysing effect. Start by checking your credit report - see yourself the way the financial institutions will when judging your ability to service a loan. Get someone to explain to you what every item means, so that you can avoid the pitfalls in future.

2. Set clear financial goals

If you don't know where you're going, it will be impossible to get there. You must define exactly what you want to accomplish financially. Setting clear goals will allow you to determine what you're building towards and why. It will help you make wise financial decisions. If your goals are disproportionately challenging your motivation will decline, similarly when goals are too easy to achieve. Keep in mind that money as such is very seldomly a motivator; therefore, be very specific about what you want to do with it upon its attainment.

3. Start where you are.

No matter how much or how little money you earn, start saving today. Set up automatic savings via debit order on your account to avoid having it slip your mind. The 'rule' is to save 10% of your earnings, but if this seems too daunting at first, start with any small amount. Soon you will see how your little nest egg grows and then adjust the amount. Never use this money to pay bills; it is there to grow and give you self-confidence.

4. Understand where your money is going

Make a list of your monthly expenses that includes necessities, discretionary items and the monthly savings necessary to finance long term financial goals. Track your spending to identify the habits that are costing you the most money and make changes to your spending habits where necessary. One of the most important steps to reach your financial goals is establishing a solid budget. Compare expenses regularly against your budget and adjust where needed. Build a debt management strategy to reduce and eliminate high interest debt and to accelerate the payment of debts like student loans and credit cards

5. Invest wisely

Building wealth through investing is a vital part of any financial plan. You should establish a low cost, broadly diversified portfolio that is appropriate to achieve both short- and long-term goals. Seek the advice of a professional in this field.

The journey to financial freedom starts by taking the first steps in attaining financial fitness and creating consistent wealthy habits and a mindset of wealthy behaviour.