There are many parallels between a physical health journey and a financial health journey (hence our name, the Financial Gym Advisors). Both involve challenging your current mindset, changing your habits, and making different choices. They are also very personal journeys and success looks different for everyone. One major difference between the two is that while we are bombarded with messages about what physical fitness looks like, we are largely in the dark about the basics of financial fitness. And unfortunately, this lack of knowledge can prevent us from doing something about it.
Why is financial fitness important?
Financial fitness is intertwined with other areas of our lives including our physical and mental health. Money is a stress in many people’s lives. When you start to alleviate that financial stress, you will see benefits in other areas of your life. Ultimately, money is a tool to help you live your best life and financial fitness gives you the foundation you need to confidently pursue your goals.
What does financial fitness mean?
Financial fitness is the ability to pursue your best life without money getting in the way. When you are financially fit, you feel in control of your finances and you’ll notice:
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You aren’t regularly stressed about your finances
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You don’t feel trapped by your finances
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You aren’t concerned that an unexpected event or expense will damage you financially
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You feel like you have agency and control over your life
What are some benchmarks of financial fitness?
At the Financial Gym Advisors, we focus on six indicators of financial fitness: savings rate, months of expenses saved, types of investment accounts, credit score, credit utilization, and debt-to-income ratio.
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Savings rate: How much of your gross monthly income are you saving each month? A good target is between 10%–20% of your income.
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Months of expenses saved: How many months of expenses could you cover with your checking and savings accounts? Having 3–6 months saved is ideal.
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Types of investment accounts: Do you have both a retirement account and a taxable investment account? Having one is great, having both is even better!
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Credit score: What is your credit score? A credit score of 750 or above gets you access to the best interest rates and rewards cards.
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Credit utilization: How much of your available credit are you using each month? Lenders like to see that you are using 35% or less of your credit lines.
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Debt-to-income ratio: How much of your gross monthly income goes toward debt payments? Lenders also favor applicants who pay 35% or less of their income toward debt payments.
These benchmarks can help you determine what you need to focus on to improve your financial fitness and they basically boil down to two overarching actions: saving and paying off debt.
Final Thoughts
Financial fitness is for everyone, but the first step is knowing where you are starting from and what your ultimate goal of financial fitness looks like. This will keep you motivated and help you know when you have achieved it.
