We all know there is no way to get physically fit overnight. Unfortunately, the same applies to getting fiscally fit. Being fiscally fit is totally a thing, by the way. It’s something you have to commit to for life, set goals for, work on regularly, and not have a total melt down when you slip up.
Luckily though, getting this type of fit can be done from the comfort your couch and even with a pint of Ben & Jerry’s to keep you company. In all seriousness though, I recommend using whatever methods work best for you. Use your computer to look up all of your accounts online and a pen and paper to write notes as you go. Tackle getting fiscally fit by analyzing these three stages of your life: past, present, and future.
A person’s financial life isn’t just numbers and data. It all is created by the actual life that person is living. Therefore, there are a lot of emotions and psychological factors that come into play when digging into someone’s finances. This can be a hard process for some, so I suggest taking it slow but steady. Take a week or even three weeks per phase if necessary. Try this route: during week one you come up with your comprehensive list and the second week you come up with solutions. Finally, in week three you put those solutions into place.
After three weeks you will feel really accomplished and will have had the satisfaction of checking multiple items off your to-do list. You will be much “healthier” than when you started and much more fiscally fit. With those early victories you should feel inspired to move on to the next phase and then finally onto the last.
For “target areas” that you just can’t figure out how to fix yourself, reach out and ask for help. You are going to feel so much better by the end of this process that you will want to continue to get even more fiscally fit and do everything in your power to stay fiscally fit. Below is basically a sample of this process of getting fiscally fit. Your experience should not be limited to the examples given. Share your tips and strategies that worked for you in the comments section below!
This is the time to gather a list of what you have hanging over your head from your past. What has your financial life been like up until today? Some examples of things to account for are:
- Opened credit cards or lines of credit
- Student loan debt
- Late/unpaid bills of any sort
- Debt owed to friends or family
Write down the creditor, interest rate, and amount owed on each and every thing you come up with. You should be concerned with any type of bill you are carrying a balance on. For example, if you owe $900 on your credit card, but pay it in full each month then that is ok. We are not looking at that as something that is lingering from your past. On the other hand, if you owe $900 on your credit card from 6 months ago, then yes write that information down on this list!
Next, brainstorm and research solutions. When looking at your debt, what small bills are hanging over head that you maybe just forgot about, a $30 bill from your doctor’s office? Knock those out with a payment right away.
Student loan debt is likely going to hang around for a while. Make sure you know exactly to whom, how much, and when you are making loan repayments. Look into income-driven plans where your payment is based off your income. Also sometimes refinancing is an option. Check out sites such as sofi.com. Make sure you are making regular payments and paying more towards the principal any month you can. Also I highly recommend student loan expert, Heather Jarvis, who is a wealth of information on this topic and may even be able to assist you one on one.
If you have outstanding credit card bills make the goal of paying those off a.s.a.p.! Credit cards usually have high interest rates and should never not be paid in full. Create a strategy that works for you. Pay off as much as you can each month and pay the ones with the highest interest rates first. There are strategies such as balance transfers, but you will want to research those entirely before making any decision since moving your debt around will likely hurt your credit score.
For example, if you do a balance transfer to a credit card with zero interest for 12 months, but your debt divided by 12 months equals an extremely high payment you won’t be able to make, then this option is not realistic. After the promotional period you will just be stuck with a new high interest rate. However, if you can knock out the payment before the promotional period is up then this could be a strategy for you. Again, you’ll always want to consider are the effects to your credit score.
If you owe debt to a person, make the commitment to pay them back. Reach out to them with a “contract” if you can’t pay them right away. Offer to set up a payment plan and pay them back, say twice a month, with a specified amount. This should help your relationship with that person and show you are committed to your obligations.
Time to take an honest look and assessment of your life today. What type of lifestyle are you living? We want to make sure you are living life to the fullest but in a smart way! Some things to account for here are:
- Fixed living expenses. Rent, monthly bills and payments, prescriptions, etc.
- Variable living expenses. Spending on entertainment, meals, travel, clothing, anything you do for fun, luxury, etc.
- Insurance coverage
- Career path and salary
- Credit score
Pull those credit card or debit card statements and find out how much you spend every month. What is spent on fixed expenses? What is spent on variable expenses? You don’t have to do a massive analysis, but write down the figures and come up with a monthly average.
Find out your credit score. Go to annualcreditreport.com for a free report. FICO scores range from 300-850 and you want to be on the higher end. The aim is to be above 750 but you should at least stay above 700. You should check your score once a year to monitor any errors or fraud. Your credit score is very important. Some employers will even check before hiring you. If something looks wrong in your report you’ll need to write to the credit reporting company to tell them what you think is inaccurate and send any documentation you may have. If your score is just low, work to rebuild it. Keep balances low, pay off debt, and don’t open new cards. Also don’t close any credit cards, just get the balance to zero and stop using it. Closing will damage your score.
What insurance coverage do you have? We all should have health and dental, most should have renter’s or homeowner’s insurance as well as auto. Write down the coverage you have and the costs per month.
Looking at that note pad with your life today written out on it, what makes you the happiest? What do you value most out of that whole piece of paper? What do you value the least? Your spending should align with your values. If they are out of whack, then make a change! For example, I value traveling and experiences more than shopping and clothing. I could drop $300 on a shopping spree or I could buy a flight to visit friends. It’s a no brainer for me. For others though the complete opposite could be true! If you are spending on what you value, then go for it. Keep in mind that I am always talking about spending money you have not spending money you don’t have! Big difference.
Now what about your career? Do you enjoy your job or like the path you are on? If not, then take this time to brainstorm solutions. If you are thinking about changing career paths, figure out how you get from point A to point B. Maybe you have to sign up for some classes to learn a new skill, or amp up your networking. If you enjoy your job and company but feel underappreciated or think you are underpaid, then you probably need to schedule a meeting with your boss. Stop being afraid to ask for a raise, but always come to the table with support as to why you deserve one.
A pretty boring and confusing topic, but very important, is insurance. Did you realize during this process that you don’t have the proper insurance coverage? I’m sure that will happen to a lot of you. It’s important to be covered, but no need to be over-covered and paying for something you don’t need. Health and dental insurance should be a priority. Renter’s insurance is usually very cheap and can save your butt in the case of a fire or flooding. It doesn’t really matter how healthy you are, you have no control over accidents or, God forbid, an illness or disease. Protect yourself and protect your assets!
A type of insurance you may be wasting money on is life insurance. If you are a single, childless, 20-something then what is the point of paying for a life insurance policy? The recommendation would be to take on a policy once children are involved in your life.
This part is fun! Time to imagine how you want your life to be. The future is basically a giant question mark, but I know we all dream about a certain life for ourselves. Write that dream life down. What are the goals you have for yourself? Make a list of what you envision, and make a few points with worst case scenarios so you can make sure to plan a way to protect yourself (and your loved ones). Some things to cover here are:
- Having a day come when you no longer have to work
- Getting to travel multiple times per year
- Having an emergency fund
- Buying a home
- Getting married
- Never having any debt
This is your life to live. Try to be a specific as possible. Do you want to move to California this year? Maybe you want to propose and get married to the love of your life. Or maybe you want to ditch your job and travel the world. All of these sound pretty great, but unfortunately they all cost money. Fortunately, though, by setting a goal you are in total control of achieving the goal and creating the life you want.
Strategies and solutions for building the future you want are endless. Having an emergency fund is something everyone needs. Before any crazy adventures can happen you really should have this money set aside. This emergency fund should be kept in a savings account and have 3-6 months of living expenses in it. Work on building this up by setting up regular auto transfers to this specific savings account. Do not touch it! Seriously just forget about, but have the peace of mind knowing you have a safety net if ever needed.
If you want to travel every year come up with an annual budget. Then divide this budget out by pay periods (usually 12, 24, or 26). Make a plan to transfer X amount to your “vacation account” every pay check. If it’s easier for you to visualize, open a savings account specifically for this goal. Try an online-only one that pays a higher interest rate such as Ally Bank. For example, if I bring my lunch 4 times per week for one year, I could have about $1,800 to spend on something else! Trust me, I’d rather take that $1,800 and spend it on an unforgettable trip (or two or three) rather than an overpriced midtown salad. I’d hardly call this a sacrifice; it’s just being conscious of what I value.
To make your money grow, and become a millionaire, you’ll likely have to invest it. If you have your emergency fund taken care of then you should look into ways to invest. I’ve written about investing in previous posts, but again it is not as complicated as it seems. And as a millennial you really should be using time to your advantage and watch the wonder of compounding let your money make more money. The easiest way to start is by investing in any employer-sponsored retirement plan offering a match. Next your goal should be to also invest in a Roth or Traditional IRA. Additional types of investing can occur in a brokerage account or something less liquid, such as real-estate.
Bottom line is that your money should match your goals. If your sheet of paper with your future goals on it does not match your finances, then make the adjustments and changes to get in shape!
Going through your financials by way of phases of your life, past, present, and future, gives you
a simple way to make sure you’ve covered everything. At the end of this exercise, which may take you 9 weeks, I hope you feel fantastically fiscally fit. I hope your eyes have been opened to your own life and that you feel much more in control. Remember this is a work in progress and staying fit is a lifelong commitment. You will feel and live so much better!