Are You Financially Fit?
On this episode of Financially Naked: Stories from The Financial Gym, our hosts are Kadri and Juan, two Certified Financial Trainers at The Financial Gym. January is traditionally a time when people set new goals and intentions for the year, and being better with money is one that's usually at the top of the list. That's why today's episode is all about financial fitness! What is financial fitness? How do you figure out if you are financially fit? Kadri and Juan discuss how you can discover where you are on the financial fitness scale, make a plan, and measure progress along the way.
Podcast Notes
Goals are an intention to improve yourself. A new goal requires reflection, mindset shifts, and discipline.
The first step is to reflect and understand why you want to make this change. The journey is long, and your 'why' can keep you grounded. It's your emotional anchor. Think about what you want to achieve.
The next step is to assess where you are right now and accept the past. We have all made mistakes, but focusing on those will only keep you where you are now. Forgive yourself, take those lessons learned, and create a plan to move forward.
Financial literacy is like any other language; it takes time to learn. Find a book, podcast, or YouTube series you like, and start learning the basics.
If this process feels intimidating, find an accountability partner. A Financial Trainer can help you with this whole process, but you can do this with a friend.
How to measure Financial Fitness
Trainers at The Financial Gym use 6 metrics to assess someone's financial fitness. It's a great progress tracker and never a judgment. These goals are:
A savings rate 10%-20% of income
6-12 months of expenses in a high-yield savings Emergency Fund
A credit score of 750 or more
A credit utilization ratio of less than 35%
A debt-to-income ratio less than 35%
A minimum two investment accounts: one tax-advantaged and one taxable.
The Financial Fitness Markers Explained
Savings rate: This number is the percent of your income that you save each month. If you cannot reach 10%, start where you can. Saving is like building muscle; you can start small and increase the rate when you can.
6-month emergency fund: This number will be different for everyone. To figure out yours, you'll need to calculate your average monthly expenses, including debt minimums. Multiply that number by 6 to find your emergency fund target. Ideally, this money is saved in a High-Yield Savings Account (HYSA).
Credit score: Your credit score is a three-digit number comprised of a few variables. It is designed to show lenders your 'trustworthiness.' Once you reach 750, you have access to the best rates. Anything higher than 750 provides extra offers and perks.
Credit utilization ratio: When you have access to credit, there is a limit. Credit utilization is how much of that limit you're actively using. Keeping it below 35% keeps your score up.
Debt-to-income ratio: To find your debt-to-income ratio, add up all of your minimum monthly debt payments. Divide that number by your total monthly income. 0% is the best number, but it's best to stay below 35%. If you're above 35%, one of your main goals should be to address your debt as quickly as possible.
Minimum 2 investment accounts - one tax-advantaged and one taxable: When saving, it's good to have a balance of accounts. Having one that provides tax benefits and one that you have access to before retirement gives you flexible savings options.
If you want to work with a Certified Financial Trainer to work on your 2024 financial goals, schedule a free warm-up call today! If you have any ideas or questions for the show, send an email to trainerpodcast@fingyms.com.