7 Steps to Financial Fitness

It's never too late to improve your financial fitness!

Managing your finances can be a complex task, especially when you're juggling various responsibilities like mortgages, family expenses, and planning for retirement in an ever-changing financial landscape.

In this guide, we'll walk you through seven practical steps that will empower you to take control of your financial fitness. Think of these steps as the keys to unlocking your financial potential.

Whether you're a first-time homebuyer or someone looking to secure your financial future, having a plan to control your finances is essential. It not only provides focus but also acts as a safeguard against detrimental financial habits!

Step 1 – Understand your budget.

"Live within your means."

This straightforward and commonly used saying emphasizes the importance of not spending more money than you earn. It encourages responsible financial behaviour to avoid debt and financial stress.

So how do you do this? By knowing your budget.

It's vital to regularly monitor your income and track your expenses. Are you regularly overspending or staying within your budget? Budgeting is the cornerstone of financial fitness.

Step 2 – Evaluate your expenses.

We live in a world filled with temptations and conveniences, all vying for our hard-earned money. To attain financial stability, it's crucial to develop a discerning eye when it comes to your expenses. This step involves not only evaluating your spending habits but also making conscious choices that align with your financial goals.

Once you know your budget, review your outgoings and distinguish between the essential and non-essential expenses:

• Essential expenses: regularly review these to ensure you are getting the best deal available or if it can somehow be further reduced.

• Non-essential expenses: Take a critical eye and really consider if they’re truly necessary or if they are simply holding you back from your financial goals without providing any real value to your life.

A famous quote attributed to Benjamin Franklin states, "Rather go to bed without dinner than to rise in debt." While a little extreme, it serves as a strong reminder of the importance of living within your means. Living responsibly and with a level of restraint can really help avoid unnecessary financial hardships.

Step 3 – Assess your debts.

Don’t let debts spiral out of control. Managing your debts doesn’t need to be complicated. Firstly, get a clear picture of what you owe by making a list of all your liabilities and write down:

• How much each debt is.

• The minimum monthly repayment.

• When the payment is due.

Make sure you include any buy now pay later purchases, credit cards, loan repayments, unpaid bills, fines and any other debts you may have.

Having this information in one place provides the clarity to better prioritise and reduce your debts. For instance, you might realise it’s better to focus on quickly paying down your “bad debt” such as a high interest credit card vs making extra repayments toward your home loan. Or you might see an opportunity to consolidate your debt into one easier to manage repayment with a lower overall interest rate.

Step 4 – Build up an emergency fund.

We hear this one time and time again – but we will say it again! Having a rainy-day fund can be a great source of comfort and help you out of a difficult situation. Life is full of unforeseen challenges and obstacles. Building up a safety net to help you out of a financial hardship like an injury or unexpected job loss can help keep you on track with your financial obligations while you get back on your feet.

Step 5 – Invest with purpose.

While investing might not be an option for everyone, even starting small can make a significant difference in your financial journey. To do so effectively, it's important to have a clear investment strategy.

• Define Your Investment Goals: Start by specifying what you want to achieve through your investments. This could include objectives like retirement planning, education funding, or simply growing your wealth.

• Assess Your Risk Tolerance: Understand how comfortable you are with risk. Your willingness to take on risk will influence your investment choices. Conservative investors prioritize safety, while those open to risk may seek higher potential returns.

• Consider Your Investment Horizon: Determine your time frame for investing. Are your goals short-term or long-term? Your investment horizon will guide your decisions on where and how to invest.

• Choose Investments Aligned with Your Goals: Select investments that match your risk tolerance, return expectations, and investment horizon. Diversify your portfolio to spread risk.

• Regularly Review and Adjust: Investing is an ongoing process. Monitor your investments, evaluate their performance, and make changes as needed to stay aligned with your goals.

Keep in mind that there are various investment options available, including stocks, bonds, real estate, and retirement accounts. Seeking advice from a financial advisor can provide valuable insights as you navigate your investment journey.

Step Six – Develop your financial education.

Don’t just sit back idle in either “blissful” ignorance or in despair thinking it’s all just too hard! Make time to learn the basics and build from there. You could be blindly walking into several common pitfalls that could otherwise be avoided or missing out of simple strategies to build your wealth more quickly.

There is so much information out there to further your financial education and understanding. Much of this material is freely available through books, podcasts and websites. The key is to learn how to ignore the click bait and get-rich-quick experts, focusing instead on pursuing sound and qualified financial advice.

Do your own research, discuss ideas with trusted friends and family, and seek the advice of successful people in your life – before long you will build up the knowledge and skills to actively take control of the steering wheel and change direction towards financial security.

Step Seven – Protect your Financial Future.

Protecting your financial future, as well as that of your family, demands careful consideration. Depending on your unique circumstances, achieving this goal can take various forms. Here are some key factors to explore and understand:

• Insurance Considerations: While it's common to have insurance for your vehicle and home, have you thought about safeguarding your income, health, and life? Each of these can have a significant impact on you and your loved ones, playing a crucial role in your financial security.

• Estate Planning: Do you have a legally drafted will with designated beneficiaries? A will can provide peace of mind for your family and loved ones.

• Guarding Against Financial Scams: Be vigilant and proactive in educating yourself about scams and handling personal and financial information cautiously to protect your hard-earned assets.

• Planning for Retirement: Have you thought about your aspirations for your later years, including your living arrangements and lifestyle choices? Have you thought about the financial resources you will need? Make sure you have adequate plans in place now so you can enjoy your retirement without worrying about your finances.

Congratulations on completing these essential steps towards financial well-being! By following these actionable guidelines, you've taken significant strides in securing your financial future.

Remember, achieving financial fitness is an ongoing journey. Keep monitoring your progress, make necessary adjustments, and stay committed to your financial goals. Seek advice from trusted experts when needed and remain open to expanding your financial knowledge.

With discipline, achievable goals, and informed decisions, you are well on your way to mastering your financial destiny. Your financial stability and peace of mind await your continued dedication.