Are you ready to stretch those financial fitness muscles? We hope so, because it’s time to get financially fit!
Being financially fit means living a life of complete financial responsibility. The Center for Financial Services Innovation (CFSI), also known as the Financial Health Network, defines four basic components of financial health: Spend, Save, Borrow and Plan. These components reference everyday financial activities. As such, every choice you make in terms of these four activities either builds or detracts from your financial fitness. Like physical fitness, you can beef up those fitness muscles a little bit more each day.
Being financially fit is crucial for a well-balanced, stress-free life. Here’s why (and how):
Expand your financial knowledge
A financially fit person is constantly broadening their money knowledge. They read personal finance books and blogs, attend financial education seminars and are aware of the evolving state of the economy. This enables them to make monetary decisions from a position of knowledge and power, leaving much less up to chance or luck.
Stick to a budget
A financially fit person knows that tracking monthly expenses is key to financial health. They are careful to set aside money from their monthly income for all fixed and discretionary expenses and to stay within budget for each spending category.
Minimize debt
A financially fit person is committed to paying down debts and seeks to live debt-free. Constant budgeting, ongoing financial education and planning ahead enables them to make it through the month, and through unexpected expenses, without spiraling into debt.
Maximize savings
A financially fit person prioritizes savings. In fact, savings is a fixed item on their monthly budget instead of something that only happens if there’s money left over. This allows them to think ahead and build a comfortable nest egg or emergency fund. In turn, having a robust safety net means sleeping better at night knowing there’s money available to cover unexpected expenses or a change in life circ*mstances.
Maintain complete awareness of the state of your finances
A financially fit person knows exactly how much money they owe, the accumulated value of their assets and the complete sum of their fixed and fluctuating expenses. This awareness takes the stress out of money management, allowing them to make better financial choices.
Maintain a healthy credit score
A financially fit person knows that an excellent credit history and score is a crucial component to long-term financial health. They are careful to pay all bills on time, hold onto their credit cards for a while and to keep their credit utilization low. This enables them to qualify for long-term loans with favorable interest rates, which saves them money for years to come.
Help your money go further
A financially fit person does not waste large sums of money on interest charges for purchases made using borrowed funds via credit cards or loans. They live within their means and only use these resources for purchases they can actually afford, or for large, long-term assets, like a car or a house. This means they have more funds at their disposal to help build their wealth through savings and investments.
Create concrete financial goals
A financially fit person has long-term and short-term financial goals. This enables them to keep their focus on the big picture when making everyday money choices, empowering them to actually realize their financial dreams.
Achieve financial independence
A financially fit person is independent. They don’t rely on loans from friends or family members to get by, and they don’t need to pay with plastic at the end of the month because they ran out of money. Their well-padded emergency fund means they don’t depend on their monthly income to put bread on the table, either. By sticking to a budget, prioritizing savings and maintaining an awareness of their finances, they are strong, secure and completely independent.
Being financially fit means living a life without battling anxiety about getting through the month or stressing about the future. You can achieve financial fitness by committing to making choices in each of the four components of financial health (spend, save, borrow, plan) that are forward-thinking and help to build your financial wellness.
FAQs
Ultimately, achieving financial fitness means you make informed financial choices that increase your wellbeing and support your life goals.
What are the benefits of being financially fit? ›
The benefits of financial fitness are many, and they range from personal to professional. On a personal level, being financially fit allows people to provide for their families, plan for their futures, and enjoy life without having to worry about money.
Why is it important to be financially healthy? ›
Financial health helps you leverage skills and opportunities to harness new monetary advantages. Understanding where you stand financially is vital to future decision-making. How much money do you have coming in?
What is the importance of being financially stable in life? ›
Ultimately, financial stability means you have a sense of security and an ability to manage your financial present – and future. Financial stability is important not only because it means that you have enough money to pay for the costs of life, but it also provides peace of mind by reducing stress related to money.
What are the 4 purposes of financial Fitness? ›
Financial Fitness engages members in teaching one another how to earn, spend, save, and protect money wisely.
Why is it important to be financial? ›
A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement, using debt responsibly, and running a business. Key aspects of financial literacy include knowing how to create a budget, plan for retirement, manage debt, and track personal spending.
Why is being financially successful important? ›
Financial success, on a holistic level, is about more than just accumulating money and being financially stable. Success, for most of us, fosters a sense of well-being and peace-of-mind. Setting goals on the foundation of what is important to you and your family will help to accomplish this.
Why is it important to be financially organized? ›
Organizing your household finances saves time and money.
A good system for organizing finances can help you avoid late fees for past due bills, keep track of your spending and savings goals, and find important documents when you need them.
Why is it important to be financially responsible? ›
Being financially responsible involves making a plan for your money and sticking to it as much as possible. Controlling where your money goes might make it easier to save for emergencies, stay out of debt and build good credit. When you put those things together, you start to build more financial security.
Why is it important to have good financial habits? ›
Importance of financial habits and norms
These skills help a person decide what's desirable and possible financially and guide their day-to-day behaviors. This could range from decisions about splurging on a treat to how much to save in a retirement account.
Many financial experts agree that financial health includes four key components: Spend, Save, Borrow, and Plan. It is crucial that you actively work on improving the health of each one.
Why is it important to be financially empowered? ›
Financial empowerment isn't about how much money you have. It's about starting down a path to financial literacy and wellness, feeling confident about your finances and ready for unplanned events in life. With financial empowerment comes the ability to tackle challenging financial times with self-assurance.
Am I in good shape financially? ›
The most common signs of a financially stable person include having little to no debt, being able to make and stick to a budget, having a healthy amount of money in savings, and having a good credit score. Financially stable people tend to see their net worth increase year over year.
What are the positive effects of financial stability? ›
A stable financial system is capable of efficiently allocating resources, assessing and managing financial risks, maintaining employment levels close to the economy's natural rate, and eliminating relative price movements of real or financial assets that will affect monetary stability or employment levels.
What is your goal to be financially stable? ›
Some of the most common include paying off debt, saving for retirement, establishing an emergency fund, saving money for a down payment on a home, saving money for a child's college education, feeling financially secure and comfortable, and being able to financially help a friend or family member.
What is the importance of financial capability? ›
Financial capability gives people the power and the confidence to make the most of their money and improve their lives. Financial capability is the ability to manage money well – both day-to-day and through significant life events like having a baby, getting divorced or moving home.
Why is financial strength important? ›
Financial strength is vital for a business to be successful. It is a key component necessary for a business to sustain, grow and ultimately return capital to owners. At its most basic level, financial strength is the ability to generate profits and sufficient cash flow to pay bills and repay debt or investors.
What is financial wellness and why is it important? ›
Financial wellness means knowing you can live and retire on your terms. It's about managing your day-to-day finances, protecting yourself from unexpected expenses, and saving for your short- and long-term goals.
