Consider Financial Fitness to be just like physical fitness. Why? Because your physical health and your financial health are arguably the most important factors affecting your well-being, security, and quality of life. When looking at your financial health, also remember that in order to get a true prognosis, you must look at your whole picture. And if you don't look at your financial health holistically, then how would you know the effect of one financial decision over another?
EXERCISE #1 - Take a Financial Fitness Test
In the Financial Fitness test, you can assess your financial fitness based on your current use of certain personal financial strategies that are associated with the accumulation of household wealth and Financial Fitness.
Some examples are:
A. Do you get large tax refunds? Why is the IRS getting to use your money and not pay you interest?
B. When you get a tax refund, do you save all of it? Spend half and save half? Spend all of it?
C. If you are large income earner, are you getting tax advantages on up to $2,200,000 income?
D. Do you discuss household finances and investments with your partner (go on a money date) ?
E. When paying your monthly credit card balances, do you pay them in full each month?
F. Do you have a healthy relationship with your money?
BFF's Golden Rule: Get a Holistic Financial Check -Up to determine your financial health.
EXERCISE #2 - Create or Maintain a Cash Reserve or Emergency Fund
Saving for unanticipated expenses, such as vehicle repairs, home repairs, insurance deductibles, not intended purchases. In other words, an emergency fund is a sum of money that remains untouched in an easily accessible liquid type of account, such as a savings account. This is your safety net.
Ever since Hurricane Katrina I believe that an emergency fund should equal 9-12 months of your monthly household necessary expenses. It certainly gave me peace of mind during that time.
BFF's Golden Rule: Never, ever touch the account outside of a genuine financial emergency.
EXERCISE # 3 - Gain Complete Control & Financial Freedom
In order to gain control and earn Financial Freedom, you must take care of the fundamentals first.
Spend less than you make. Just like you can't lose weight if you take in more calories than you burn, you can't save money if you spend more than you bring in. Review what I call, Wise Spending Plan (WIP). When you spend money wisely, you feel good about yourself. Conversely, if you waste money on useless trinkets, then you have regrets. Work up your WIP, where you prioritize your expenses, set spending goals, and then stick to them going forward.
Reduce debt by making a list of all debts and prioritize them in order of interest (highest to lowest).Once your first debt is paid off, roll that payment amount into the next debt on your list.If you only have a home mortgage, add more to the principle. You will not only reduce the number of years you have payments, but you will also save thousand in interest!
BFF's Golden Rule: A few minutes of planning will reward you with less financial stress.
EXERCISE #4 - Stress Test Your Portfolio for Maximization
Think long - term, is your portfolio on track to meeting your targeted goals? Will your portfolio carry you through your visions? If you sustain a significant loss of capital, how will that loss effect your plans? Test if your portfolio is top heavy with one stock concentration or even in one type of fund, such as all in S&P 500. What's your strategy for gains? Losses?
If you have any 401(k), 403(b), 457 accounts from former employers, be sure to roll them into an account that you control. Consolidation can also make your retirement accounts easier to manage: however, in doing so make sure you don't jeopardize the diversification.
BFF's Golden Rule: Don't be aggressive to get higher returns if it's costing you more in fees and not worth the risk.
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