As many of my friends and clients know, I’m into health and physical fitness. As a wealth advisor, I’m also passionate about financial fitness. What does financial fitness mean to me?
The best way for me to describe financial fitness is with one word: freedom. I also believe that financial and physical fitness are interrelated (more on that below). And I’m not the only one. Herophilus, an ancient Greek physician once said “When health is absent, wealth is useless.” And another sage of antiquity, the Roman poet Virgil, puts it another way: “The greatest wealth is health.”
With that in mind, here are my top five tips for achieving financial fitness:
- Check your vital signs regularly
The basics are important, and too many people fail to do these simple things regularly. Check your credit rating, review your emergency fund (aim for six months of living expenses), and review your total debt status, as well as how much you are contributing to your retirement plans.
- Eat well and exercise
As I said above, I believe your physical health and your financial health go hand in hand. Improving your diet and exercising regularly will help you reduce your long-term medical costs and enable you to get lower cost health insurance in many cases.
A George Washington University study in 2011 concluded the average annual cost of being obese was $4,879 for women and $2,646 for men. (The figures include indirect costs such as diminished productivity and direct costs such as medical care.)
While that may not sound like a lot, consider that the same amount invested annually over a 40-year career at a conservative 5% average annual return would have resulted in almost $600,000 and $320,000 for women and men respectively.
- Be proactive about identity theft
The statistics on identity theft are staggering! In 2014, 17.6 million U.S. residents experienced identity theft, according to the Bureau of Justice. With identity theft cases and data breaches on the rise, it is easy to see why prevention is key.
Being proactive is pretty simple:
- Use strong passwords and change them regularly
- Shred financial documents instead of throwing them away
- Make a credit card your primary spending vehicle (in light of the $0 fraud liability guarantee) as long as you are diligent about paying it off every month and don’t use this as an excuse to overspend.
- Consider identity theft protection services like Lifelock
- Never miss a due date
Paying your bills late can be very damaging to your credit score. Many creditors typically won’t report a late payment to the credit bureaus until it’s at least 30 days past-due, but negative notations about such payments will remain on your credit reports for seven years.
Setting up automatic payments is an easy, quick way to make sure you don’t accidentally miss the due date on your bills. You can do this usually either through your bank or directly with the company you owe money to.
- Save for the future
When you get to retirement age, either you'll have saved enough money to live comfortably or you won't (and wish that you had). That’s unfortunately the harsh reality of it.
Bankers Life and Casualty's Center for a Secure Retirement conducted a survey of retirees in 2012. When asked to give younger people just one piece of advice, 39% of survey participants said “Save for the future.” That answer beat out every other, including finding work you enjoy, being responsible for your own life and continuing your education.
You probably already know this, but if you have a retirement plan at work, join it if you haven’t already. Contribute the maximum now if you can; if not, increase your contributions incrementally until you do reach the maximum on a pretax basis. If you’ve maxed out those contributions, contribute to an IRA, too.
The sooner you start saving, the less you need to save each month, the more wealth you'll accumulate, and the sooner you can quit saving and experience the joys of financial freedom.
If you have any questions or want to discuss any of these steps to financial fitness, don’t hesitate to contact me.