Finances & Money

5 Steps to Improve Your Financial Fitness

62% of Americans have no emergency savings and could not cover an unexpected $500 repair bill. Many people believe that they will be able to escape the paycheck to paycheck cycle if they make more money, but making more money does not solve financial problems. 20% of high net worth individuals, with assets of $100,000 to $1 million, live paycheck to paycheck.

How can you break the cycle of living paycheck to paycheck?

The only way to solve your financial problems is to improve your financial fitness. A few simple lifestyle changes can dramatically improve your financial fitness, but you have to be willing to make those changes and stick to a financial plan. Here are five easy steps you can take to improve your financial fitness:

• Take your financial measurements
• Set measurable goals
• Make a plan
• Automate savings and debt payment
• Invest

It’s important to start by taking your financial measurements. Make a list of your debt and savings. Check your credit score. Invest in the best personal finance software you can afford. These small pieces of information will help you set goals based on your personal financial situation. Everyone’s financial situation is different and needs a different financial plan. If you have $100,000 in student loan debt, you don’t want to follow a financial plan that focuses on creating a six-month emergency fund. You want a financial plan that will help you pay off your student loans.

Once you have identified your financial goals, you can create a financial plan that works for you. Your plan should include a budget, debt repayment goals and savings goals. Setting up automatic debt payments and transfers to savings will help you stick to the plan. It’s less tempting to overspend if you never see the money that is destined for savings in your checking account.

Set small mini-goals that will help you accomplish your larger financial goals. If you plan to pay off $100,000 in student loan debt in five years, set smaller milestones like paying off your first $5,000 in four months.

Build rewards for achieving those mini-goals into your budget. Just like it’s hard to stick to a diet when you feel deprived of food, it’s hard to stick to a budget when you feel deprived. Celebrate each milestone you reach with a reward. The rewards will keep you motivated to reach your next milestone. If you fail to reach a goal, don’t get discouraged. Reevaluate your plan and start moving forward again.

33% of Americans don’t have a financial plan and the average middle class adult only has $20,000 saved for retirement. Money grows over time. There is no reason to delay saving for retirement. Every small step you take today will multiply in the future. Saving $1 today is better than doing nothing.

The changes you have to make to get financially fit are not difficult. When you first start it can feel overwhelming because you are constantly updating your budget and tracking your spending. It feels like managing your finances has taken over your life.

Like any other major life change, once you do something long enough it becomes a habit and gets easier over time.

James Hendrickson

James is an internet entrepreneur, blogging junky, hunter and personal finance geek.  When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College.  He loves individual stocks, bonds and precious metals.