The journey to financial fitness can be so overwhelming and a lot time and effort is required to reach your financial peak. The centre of financial services and innovation(CFSI)’s has mentioned the eight key indicator of financial health. These indcators are derive from the four basic components of finance:plan, borrow, spend and save.
Sometimes is very difficult to know where to start from when building financial fitness but proper planning and determination will help you attain your financial fitness.
Building financial fitness is just like becoming physically fit which involves continual efforts, discipline, determination, shift in habits and ton of workout. Same is applicable to building financial fitness.
This article contains breakdown of 8 indicators that shows your financial fitness.
Here are the eight indicators that shows you that you are financially healthy;
- When you spend less than your income
- When you pay bills on time and in full
- When you have sufficient living expenses than your normal savings
- When you have sufficient long term savings and worthy assets
- When have sustainable debt load
- When you have a prime credit score
- When you have an appropriate insurance
- When you have plan ahead for your expenses.
It’s worthy of note to start your saving plan with easy and big win. Want i mean by easy win are the changes that require little effort, but can net major savings later on. While big wins includes the slashing cost in the top three spendings which are housing, transportation and food. For instance, setting up a separate savings account for a specific goal, and auto-saving the amount each week. Another easy win is finding ways to reduce your utility bills and subscriptions.
Here’s why it’s best to focus on the easy and big wins:
You Get a Psychological Lift from the Get-Go
If you’re pushing a huge boulder up the mountain, you’ll want to enjoy a win early in the game. Other shifts to improve your money situation, such as forming better spending and saving habits, take a lot more work and willpower.
Saving $10 a week on gas by taking the commuter bus instead of driving to work a few times a week will net you $40 a month or $480 a year. Nixing a few digital subscriptions to online publications you no longer read could put $25 a month in your pocket, which tallies up to $300 a year. I use auto-saving for most of my goals, and I love checking my balances and seeing the number climb at a steady pace.
You Lighten Your Cognitive Load
A study by the Common Cents Lab on why people might struggle to save and manage money throughout each pay period reveals that a greater cognitive load posed a barrier. Needing to check your balance every day, and weighing all your spending options against each other can take a mental toll.
Let’s say you’re deciding on whether you should fork over a few bucks for a cup of coffee and a pastry at a coffee shop on your way to work. Financially speaking, it might only cost you a few bucks. But even the smallest transactions can send you spiraling down the rabbit hole of mental money math. If you’re trying to make the money sitting in your bank account last until the next payday, or save a bit of it, a litany of considerations might be running through your head.
You might need to gauge what bills you need to cover in the next week. What other unexpected costs might creep up? Can you ultimately afford spending this, or should you practice restraint so you can save some of that paycheck? All those questions require a ton of mental effort.
If you make the effort in saving with either big or easy wins, or do something simple like automate your savings, you’ll have less decision-making to do. You won’t have to wrestle with the constant stream of questions. Instead, you can feel okay spending that money, because you’re already doing other things to save.
Pointers on Scoring Easy Wins
Automation is your friend. Get acquainted early on. If there’s one thing you can do today that will help you in the long run, it’s automating your savings. Set this up on a money management app, or through your bank.
As for cutting the costs on your recurring bills and recurring subscriptions, look for subscriptions you no longer use or have little value to you. For the ones you do still use, can you negotiate for a discounted rate, or find a less-expensive alternative? What about swapping the membership to the luxury gym for a cheaper one at another gym? When looking for easy wins, be careful not to cut back so drastically that you feel deprived. If you do, you could suffer a bit of backlash—rebelling by overspending, or just plain feeling miserable.
Tips on Making Big Wins
As you might imagine, there’s only so much time you want to invest if you want to put into making your big wins. Saving on your grocery bill might come a little easier than major changes to your housing or means of transport.
As for what to focus on within the big wins, I say keep it fun. Are you a natural bargain hunter? Seek coupons and sales on your groceries. If you want to net significant savings and are willing to make more drastic cuts in your housing or transportation, look at the cons and pros. For instance, what are the trade-offs of getting a roomie or AirBnbing one of the rooms in your home, or in making the switch to a one-car household? Is the money you’ll potentially save worth the trade-offs?
As the journey to having a positive relationship with your money and developing strong financial fitness is long and hard, netting wins early on will keep the momentum building. Results are what keep us going. There’s no point in going to the trouble of cutting coupons, auto-saving each week and brown bagging it to work if you don’t see the money piling up in your bank account. And in turn, the freedom to spend that money on something meaningful or intentional. But you can’t flex until you have financial muscles.
I recently spent a fair amount of money on some pricey high-end cookware. It’s something thrifty me wouldn’t typically buy. But I could feel good about spending that money because I had been auto-saving toward a splurge fund. In turn, I could give myself full permission and freedom to make that larger-than-usual purchase.
Not only will your wallet thank you, but you’ll also enjoy a clearer headspace and feel good about your daily money decisions.
Comment below if you have another indicator I didn’t mention or is there is any observation and don’t forget to share this article with your friends using the share icons, in doing so them too can analyze their financial fitness.