Five Steps Toward Financial Fitness

It’s the time of year when everyone loves a fresh start. Some people are resolving to get physically fit. On New Year’s Eve a few years ago, I resolved I would become financially fit. It ended up being good timing because later that year, we got pregnant with our first child. I remember when I was getting closer to my due date someone asked if I was nervous about anything. I said that if we hadn’t gotten on a budget and started getting out of debt, I would have been worried about finances.

There’s nothing magical when it comes to getting your finances whipped into shape. The trickiest part, like most things that are good for us, is taking control of yourself and sticking to a plan. But luckily, there are lots of resources out there to help!

Here are some things I would recommend:

1. See a financial advisor

No matter where you are financially, I am of the opinion that everyone should at least have a consultation with a financial advisor. My husband and I just did this recently at the ages of 32 and 30, and I wish we had done so when we were in our early 20s! A couple of ladies at work told me recently that they wished they had met with somebody when they were young rather than waiting until it was it was time for them to retire, so I took that advice to heart and we had a free consultation with an advisor. We took the time to research five different advising offices before choosing one. The one we chose was quick to respond, professional, and didn’t hold it against us for being young and not having a billion dollars for them to invest for us. They had similar values when it came to life and money, and they took the time to find out our current financial status as well as our long and short-term goals. We feel very happy having decided to use them, and it’s really nice having someone who can unravel the complexities of retirement accounts and educational savings plans.

2. Get out of debt
   

A few years ago, I was talking to my dad and he said, “When are you guys going to start paying off your debt?” and in my ignorance I said, “What debt?” For some reason, in my head “loans” were not as bad as “debt.” I don’t know why, and it feels pretty silly when I think about it. When we started adding it all up, we actually had a pretty good amount to pay off (like a lot of people!): cars, school loans, and a little bit on the credit card. It was shocking for me to discover just how much of our monthly income was going to these debts! Once you pay off loans, you have a lot more money to put toward whatever your financial goals are: a house, college, retirement, travel, etc. It helps to have a plan to follow. I started by googling “how to get out of debt” back when we started; our plan used the debt snowball method and I liked that pretty well.

3. Plan for retirement

Before meeting with the financial advisor, I did some preliminary research. I looked up what the average American saves for retirement each month. Guess what that number is?  ZERO! A lot of people are saving no money for retirement. Yikes! In my early twenties, I had a few hundred dollars in the state retirement system from a job I worked for a couple years. Do you know what I did with that money after leaving the job? I cashed it out. Now that I know how retirement works, and the power of compound interest, I could kick myself for doing that! Even if you can’t put a lot towards retirement now, the magic happens when it is in a retirement account for many years. And people are generally able to put more in in the final years of their career when they are supposedly making the most money. So, if you aren’t putting any money in right now, do it, especially if your company offers a match. Just call your HR office and find out.

4. Make a budget you can actually stick to

This is probably the most important thing when it comes to being financially fit. When we first got married, my husband was the natural “saver,” so all the money stuff fell to him. I remember every month he would tell me, “Be careful with the money!” And I would say, “Ok!” and head off to Target not knowing what that actually meant. When we started our journey to become debt free, the first step was listing out all our monthly expenses. It was shocking how much money we were unknowingly spending. You might be able to guess what two categories were the worst offenders: Target and Starbucks. Maybe even more shocking is that I got really involved and now I actually do our monthly budget. It’s almost like a game to get our paychecks every month and allocate everything. It takes two or three months to get a clear picture of what pops up from month to month, and then after a year you have an even better idea. For example, we only pay for Amazon Prime once a year, so I always know to set a little extra aside for that month. What also helped me was having a budget app on my phone. It’s super easy to be able to see how much is available in different categories at any time.

5. Use sinking funds

A sinking fund works by setting aside savings for a specific expense you know is coming. Common examples would be Christmas, a new car, a vacation, or a home repair. Some people really love sinking funds and have tons. I just have one: Christmas. I decide how much we’re going to need for the next year, divide it by 12, and put that much in a separate account at a local credit union each month. That way it’s easy to access and I can even use it if I find a Christmas present in August. (Let’s be honest though; if I buy a gift that early, I’m probably going to forget where I hid it.) All our other regularly occurring events go into a general savings account for oil changes, garbage pickup, car repair, etc. I just put a certain amount in each month and then I can pull from it when those expenses come around every three or six months.

I hope these tips are helpful if your goal is to get in shape financially! Do you have any other steps that really helped you or that you wish you had done earlier?