6 steps for feeling financially fit

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Finances are not necessarily my strong point, but I know that they are an element that can help make your life positive. Whether or not you have a lot of money isn't the issue -- it's how you manage it that determines whether or not money will bring you up or down. For this reason, I've decided to feature an article about feeling financially fit. Though I don't typically cover this topic on Positively Present, it's an important one and I hope you'll use the tips provided by the author, Dan Blakely, to make the most of your financial situation. Dan is the author of Growing Cents – a personal finance blog focused growing our own path to financial independence – and Simplicity Tree – a simple living blog focused on living in a simple, thoughtful and sustainable way. You can follow Dan on Twitter at @GrowingCents and @SimplicityTree.

 

Do you ever sit and wonder at the end of the month where you money goes? Wonder if you are making the right decisions that will ultimately allow you a simple and relaxing retirement or to spend more time with family? Stock market returns have not been great, banks pay interest rates that make us flee and the bombardment of advertising lures us to buy the newest shiny thing or high-flying stock. This gets increasingly frustrating the older we get.

How do we push past this and open the door to a stress free and positive relationship with our money? For me it boils down to instilling discipline.  Discipline in spending, discipline in saving, and discipline in investing.  Having discipline in how you manage your money will help give you a feeling of success with your personal finances. Often it takes just one smart step to start putting your worries behind you.  Here are 5 easy things that you can start today that will make you feel better about your relationship with your financial self and turn something that may have been a negative into something positive… or at least something that you do not fret about as much!

 

Step 1: Find Your Reason to Believe

This is an important step because to get where you are going you need to know two things.  

• You need to see the big picture and the baby steps. You need to have a personal vision of where you see yourself in 5, 10 and 20 years from now. It is often really hard to think in terms of broad, long-range goals. As a society we are not trained that way, we are trained to think short term and instant gratification.To break this habit, you will need to be honest with yourself and realistically assess what you want from your life.  Yet, you need to be concrete enough that you can identify the steps you need to start taking and then for god’s sake just start taking each little baby step. I promise, if you stick to it then you will look back in a month’s or year’s time and see how each of these little baby steps have laddered up to something bigger.  Give yourself a pat on the back because most people never get off the starting line and just fall back into the same old habits and routines.

• You need to understand the “why” behind your personal vision – the reason that makes it so compelling for you to pursue it. Motivation and a reason to believe are absolutely core to making big goals achievable. It must be in your heart and soul and, I’m sorry to say, if it isn’t then you will likely have a tough go at realizing your vision. If your mind is fraught with self-doubt then that will eventually undermine your own self-esteem. Both of these are deadly to making dreams come true. Your reason to believe is what will give you the persistence and determination to press forward.

 

Step 2: Spend Less Than You Earn and Start Saving

You have likely read this simple step everywhere but are you doing it?  This step is the base of every path that leads to financial freedom. You cannot have any success in your financial life or reach financial freedom if you spend more then you bring home each month. It is a simple fact and should be the first thing to tackle. At the same time, you should pay yourself first and start saving some money.  The consensus here seems to be that you should whisk off at a minimum of 20% of your net take home income from each check and do it before it hits your spending account – like you never had it!

 

Step 3: Create a Spending Plan and Track It

You have to start working a process to evaluate your progress. Set a reasonable monthly spending plan but do not obsess! It is just a plan and not set in stone.  You do need to track your spending and income but if you bust a category for a month don’t stress (unless you do it repeatedly!).  When you exceed a category, it’s an opportunity to learn and adjust as necessary but you need to be realistic with yourself. Try your best to stick to it but at the end of the day just remember that the numbers just need to balance out – meaning you might over spend one category but under spend in another.

There are some really great and simple programs out there that help you create and track your spending. I personally like Mint because it synchs automatically with most banks and has great functionality to help you keep track of spending. However, here’s a good run-down of options for other great money tracking programs.

Again, don’t go crazy or obsess and my advice is that you just track your active spending accounts (checking, debit cards and credit cards) on a weekly basis. All other accounts like investment and savings simply do not matter on a weekly basis.

 

Step 4: Snowball Your Consumer Debt

If you are one of the lucky few and do not have any credit card debt, car loans or other consumer debt then congratulations – you deserve a hearty pat on the back!

If you do have debt, then it is time to make a plan to eliminate it once and for all because you will never get ahead with mounting consumer debt issues. There is a wealth of great information out there on eliminating consumer debt and the snowball method of doing so. I suggest you check out this article on how to construct a debt snowball in one hour or less. They are both great resources for creating your own snowball. However, even with the best debt snowball plan, you will not make any headway without the vision and the reason to believe.  Your reason to believe needs to be bigger than your debt snowball and as you watch the balances go down your sense of accomplishment and self-confidence will soar!

Also, this step may further feed into your development of a spending plan because if you are overspending then it will only compound your debt issues. I would strongly consider that you switch from using credit cards and instead use a rewards debit card that draws money direct from your checking. That way if you do not have the money you cannot spend it. You are forced to spend less than you earn, not to mention that you will want to avoid the costly NSF fees if you overdraft your checking account. This all requires discipline.

 

Step 5: Look into Lazy Investing

It’s ok to be lazy with your investing. The idea of lazy portfolios is a buy and hold mentality that focuses on low cost, no load/fee index funds. There are many different lazy portfolios and you can check some out on the Boglehead’s forum and more mainstream on CBS MarketWatch. Just pick one of them and move on. The great things about lazy portfolios is that they are an extremely efficient way of investing, they perform well and deliver savings to you in many ways like:

• Time - not reading about investments, watching the market daily, checking my investment accounts, thinking about how or when to sell or buy, looking for stocks to chase, talking to my broker, and the list goes on

• Stress - thinking about the market daily, worrying about the daily losses and gains on the stock market, fretting about how to best time a buy or sell order

• Money - lazy portfolios are immensely cheaper than the loaded and fee laden funds that my broker would put me into, not paying my broker his fee for his services in putting me in the higher cost/load funds, and not spending money chasing investments

Step 6: Don’t Forget to Periodically Take Stock

One final thing to do is periodically check in on your progress.  You can set all the goals you want but if you do not take time periodically to reflect on them and assess your progress then you will generally not make the type of progress needed.  With personal finances, I recommend reviewing your spending plan on a weekly basis and then only visit investment accounts quarterly or even annually. 

Once per year grab some coffee, sit down and take stock. Revisit your reason to believe, check your progress and recommit. I’m confident that if you stick to the plan and keep taking little steps toward it then you will be overwhelmed with you sense of accomplishment when you take stock at these times. These are the easy steps that we can all start doing today. Your time to live is now so put any financial concerns to rest so that you can enjoy the more important things in life like friends, family and chasing those experiences that make life richer.

 

This article was written by Dan Blakely.  Dan is the author of Growing Cents – a personal finance blog focused growing our own path to financial independence – and Simplicity Tree – a simple living blog focused on living in a simple, thoughtful and sustainable way. You can follow Dan on Twitter at @GrowingCents and @SimplicityTree.

 

Comments

[Dana]

I really liked this post! I've been on a savings account craze lately. I personally use Mint and find it really helpful. Another great way to save money (especially for specific goals) is SmartyPig, which has 1.35% APY.

[positively present]

Dana - Thanks for your comment and the suggestions!