Financial Fitness and Where to Start

Fitness” has been a widely used word in the recent years. From physical, to mental, and even relationships. But what about your finances? Financial fitness is as important as all the other ones. Lack of knowledge on how the money works will cause you to fail.

AWARENESS/EDUCATION

The first step to be financially fit is to understand your cash flow: inflow and outflow. This is like stretching– your pre work-out routine. Once you get a good grasp of this, then you’ll be ready to work out the building blocks of your financial life.

Adding the value of your assets and subtracting it with your liabilities will give you an overall picture of your financial standing. As a warning, you might even end up negative. But don’t lose hope, this is only the first step. And just like working out, this only means that you have some work to do.

PLAN

Now that you’ve taken the first step, the next and the most important one is to PLAN. Make your short term and long term goals. And an important part of planning these goals is “budgeting”. Make sure you know your monthly net income, and work your budget around this.

Needs vs Wants:

The first thing in your budget list should be what you need. This does not only stop with bills, you should also take into account your taxes (if already being deducted from your paycheck, take into consideration that you might still have to pay additional at the end of the tax year) and insurance (if medical insurance is already being deducted, you still have house and car insurance). Your short term goals should include monthly bills. Then the mid-term goals should include taxes. And your long term goals should include paying off your mortgage, any other loans, and your credit card bills.

After budgeting what you need, then you can budget what you want. Let’s face it, work without rewards makes working harder. We still need to reward ourselves every once in a while. Whether it be buying something you like, or eating out at a nice restaurant or even getting massages. But remember that with this you have to consider “What you can afford vs what you cannot afford”. So what if you really like something that you can’t afford at the moment? Let’s say you want to buy yourself a pair of shoes that costs $300 but you can only budget $50 per month for your “wants”. Set aside that $50 until it becomes $300. But at the same time don’t consider that $50/month as savings, consider it as money already spent.

SAVINGS

After you become aware of your financial standing, and budgeted your needs and wants, the next step is to ensure your future.

Emergency Fund

One thing you can’t be certain about is the — FUTURE. What if you lose your job, or something happens that will prevent you from working? Remember bills don’t stop coming even if you’re not working. Or what if something happens that would require a big amount of money? It is encouraged that you have an emergency fund of at least 6 months’ worth of your monthly bills. This is to give you enough time to find another source of income.

Retirement

Who wants to work forever? Even if you’re a workaholic, there will come a time when your body won’t let you anymore. So what will be your source of income then? As they’ve said, the old way of thinking of working until the retiring age and living happily after is over.  These days you have to be proactive with your retirement/savings.

You can only do this by making sure that your savings will yield you profit and that is through investing. But let’s face it, the word “INVESTING” can be scary. We always associate investing with “either you lose or you win”. But nowadays there are a lot of ways where you can invest and be sure that you’ll make a profit out of it. One example is a flexible life insurance. As long as you pay your policy it’ll eventually be a great low risk investment with a high rate of return.

This is just the start of your Financial Fitness journey. It is not going to be easy. But just like any other kind of fitness, for as long as you have the patience, you put in the work, and you’re consistent, it will eventually generate the results that you want.

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