Financial fitness is much like physical fitness. It requires consistent upkeep. Discipline and education can help you stay on track. According to Dr. Mehmet Oz in "You: The Owner's Manual," a reduction in financial stress can improve your health and increase your lifespan. Also, like physical fitness, your financial health can be rated according to several different categories.
Budget
According to celebrity financial advisor Dave Ramsey, your budget is the core of your financial fitness. Like your diet, it constitutes your daily, weekly and monthly input and output. You can only begin to address your financial health if you keep track of what you're making and spending, says Ramsey. A budget where you spend less than you make is the first step toward financial fitness. Some families can achieve this with only a general notion of their money habits. Others need to track spending -- even the smallest transactions -- every day.
Debt Profile
Debt is the biggest hurdle for many modern families. According to financial education guru Rob Kiyosaki, the best debt is no debt at all. However, most families maintain a balance of "good debt," like student loans and a mortgage. This is sometimes necessary or even unavoidable. The key to a healthy debt profile is avoiding consumer debt -- debt you've taken on to buy unnecessary toys like a new car or using credit cards.
Spending Habits
If budget is your financial diet, spending habits is your financial exercise. It's easy to fall into habits of spending more than you make on things you don't need, thus leading to poor financial fitness -- the same way weeks of no exercise leads to poor physical fitness. The first step to good spending habits is to learn what you're spending now. Ramsey recommends tracking all spending in a journal or on a spreadsheet. Once you know your habits, you can start changing them. Also like physical fitness, you may need to change slowly, addressing one habit at a time.
Protection
Protection from financial catastrophe is an important part of your financial fitness. Ramsey recommends addressing this protection with a combination of savings and key insurance. A savings account with at least three months' worth of your family's income will help hedge against large, unexpected expenses and against a loss of income. When it comes to insurance, Ramsey warns that many types of insurance are bad bets. However, he does recommend homeowners', long-term disability, term life and auto insurance.
References
- "Total Money Makeover"; Dave Ramsey; 2008
- "Rich Dad, Poor Dad;" Rob Kiyosaki; 1998
Member Comments