Every year, right after the Christmas holiday, the fitness advertisements from health clubs, dietitians, exercise equipment manufacturers, weight loss products and exercise programs started to pour in. You’ll be bombarded by television commercials, radio ads, street billboards, ads on public transit, magazines, flyers delivered to your mailbox and even when you are surfing the internet, the Google AdSense ads will follow you to every site that you go to.
At this time of the year, the fitness industry knows that people have overindulged on a meal or two (I just can’t resist all those tasty foods during this time of the year when the mood is so festive.) In addition, with the new year just around the corner, most people want to set themselves up for a brand new year and will try to improve themselves mentally and physically by making new year resolutions. Though I don’t have any statistical data to prove it, I think that weight loss would be one of the top three new year resolutions for most of the people living in Western countries.
While physical fitness is important for our overall health and we should keep ourselves fit, financial fitness also plays a major role in our overall health too. In my opinion, being financially fit should also be one of the top three goals that most people should set for themselves in the new year. To get into tip-top financial shape, I’ve compiled a checklist to make it easier for you to stay in the financial gym way pass the mid-February mark and keep you motivated longer.
Check your credit reports/scores
One of the most often used gauge to measure your financial health is your credit score. The two major companies that track your credit score and credit history are Equifax and TransUnion. You can go to both of these companies’ website and fill out a form to get your credit report for free once a year, but you’ll have to pay to get your credit score.
Over at Million Dollar Journey, Frugal Trader had a great post on how you can check your credit scores for free and I do recommend that you sign up with at least two sites to check your scores for free. One that’s provided by Equifax and the other provided by TransUnion.
I signed up with Credit Karma as it provides a credit score and report from TransUnion. To see my credit score from Equifax, I signed up with RateHub.ca. After signing up, the first thing that I did was to check my credit score of course. To my surprise (this is the first time that I check my credit score in years), my credit scores are 785 for Equifax and 793 for TransUnion. For me, the credit scores of both companies are quite close (you are probably not going to have the same score from both companies as they use a different formula to calculate it) so I was quite satisfied with it.
For many reasons, if there is a big difference, like 50+ point between the two scores, you should definitely investigate further. However, if your scores are similar and you want to improve it, you can once again visit Frugal Trader’s post on how you can improve your credit score. A good way to start is to always pay your bills on time and in full every month.
My Equifax and TransUnion credit score.
Create an emergency fund/plan
Life is unpredictable and sometimes at the most inopportune time, $hits happen and you will experience a setback or two in your life. To minimize the impact of these unforeseen events on your financial health, the best way to do it is to have an emergency fund or access to funds. Though it’s not a bulletproof plan, having a plan is better than no plan at all. Depending on what stage of life you are currently at and the personal assets that you own, you can view and build your emergency fund in different ways. This is a personal preference thing and the number is up to you as long as it allows you to sleep well at night without worries.
For me, I don’t need an emergency fund. I built access to emergency funds as my philosophy about the emergency fund is quite different from the finance experts out there. You can check out my post on how I built access to a $100,000 in emergency fund instead of having cash sitting in a savings account.
Develop a saving habit
When you exercise on a regular basis, chances are, you will be in decent physical shape. There is no guarantee that you’ll become a professional athlete, but for sure, you may be able to turn a few heads at the beach. The same is true if you have a good saving habit and save on the regular basis.
If you save even 5% of your income on every pay cheque, you’ll be in decent financial shape, just like having a 15-minutes walk on a daily basis. It may be hard to start at the beginning, but once you get into a routine, it’ll be second nature to you. For example, I have at least 6% of my income deducted from every pay cheque and direct it to my Registered Retirement Savings Plan (RRSP) account for more than 10 years now.
Over the years, I can honestly say that I had never noticed any negative impact on my financial health or cash flow. In fact, my saving habit had improved my financial health significantly over the years and it’s one of the major factors that helped me built a healthy net worth of over a million dollars over a 10 year period. If you need some motivation to save, you can read my post about how I earned a 72% return on my savings the easy way from a while ago.
Create a budget
To be honest, I’ve tried creating a budget before, but I’ve never finished creating or having a fully working budget. It’s not that I can’t do budgeting or I don’t want to follow a budget. I’ve always been very money conscious ever since I was very young and I am naturally good with numbers and often like to do (simple) arithmetic in my head (fun fact, I once wrote a high school accounting final exam without a calculator and passed it). Hence, I have a very good idea of the inflow and outflow of money from my accounts. However, with that being said, I still think that a budget can be very useful in several ways.
The most obvious is that you have an actual record of the monthly expenses tracked and you can see how much you are spending on a monthly basis versus how much income you are making. Numbers don’t lie, people do. This is a great way to make yourself accountable for your own financial success or failure. Secondly, a budget can help you identify which area of your monthly expenses that you can work on to improve your finances and reigning in those frivolous expenses. Third, most of the great budgeters have savings built into their monthly budgets to ensure that their incomes, expenses, and savings are fully integrated as one.
If you are looking for resources to help you learn how to build your budget, check out Kristal Yee’s and Canadian Budget Binder’s blogs. These two are master budgeters and I have learned a lot from reading their blogs.
Set financial goals for yourself
When you exercise on a regular basis, if there is no fitness goal like being able to bench press your own weight, or running the half marathon in 3 hours or reduce your body fat to 10%, you tend to plateau after a while and even losing your motivation to exercise overall. This is usually the case for a lot of people who joined the gym at the beginning of the year and by mid-February or so, they quit. The same goes for your savings habits.
If you don’t have a concrete financial goal to drive you, you’ll eventually lose your discipline and motivation to save because you don’t know how much money you’ll need at retirement and when you can retire. I almost fell into this trap until I started blogging. I am really happy to share with you that by knowing how much much I need at retirement and when I can retire have motivated and inspired me to be financially fit more than any point in my life. I called this motivation factor my Freedom 48, the age that I am striving to retire by.
Stay tuned. In Part 2: How To Improve Your Financial Health, I’ll be covering the topics below. Until then, have a happy and safe holiday. Happy New Year and see y’all in 2017. I mean don’t forget to come back and read the second part of my post in 2017.
Part 2: How To Improve Your Financial Health
– Debt management
– Have a workout buddy
– Join a financial fitness class
– Understanding the basic tax rules
– Setting your own reward system
– Financial fitness assessment