Ten Tips to Financial Fitness

Ten Tips to Financial Fitness

Financial fitness is a subjective term. For some people, financial fitness refers to a large savings account, others define financial fitness as swiping a debit card without having to worry about over drafting, and others still have different definitions. Some tips are outlined below to help you reach your subjective definition of financial fitness.

Step One: Develop Your Strategy

The first thing essential to reaching financial fitness is to define your strategy and outline the steps necessary to get there. Your financial strategy should be based on you. Examples of things to be considered are long-term goals, investment timeframe, and comfort level with risk.

Step Two: Understand Risk

Risk, which can be defined as economic inflation or interest rate risk to name a few, is often synonymous with return. Typically, the higher the return potential, the higher the risk. “But it’s important to not lose sight of what could be the biggest risk you face when investing – not reaching your long-term goals,” Financial Advisor James Lambert said.

Step Three: Diversify for a Solid Foundation

Diversification refers to a mix of asset allocation, meaning you invest your money in stocks, bonds, cash, and other investment opportunities. The spread of your money into a variety of pieces means if one suffers, then your entire portfolio is not wiped out.

Step Four: Stick with Quality

“Of all the factors to consider when investing, we believe quality is one of the most important,” Lambert says. “It’s also one of the most overlooked.” A stock’s ability to overcome temporary challenges in the market qualifies the stock as a stock of quality along with other factors.

Step Five: Invest for the Long Term

“Despite stories we hear of fortunes made on one or two trades, most successful investors make their money over time. We believe the most consistently successful investment strategy is to own a well-diversified portfolio of quality investments and to plan to own those investments for the long term,” Lambert advises.

Step Six: Have Realistic Expectations

The more you save and contribute to your investments, the more you will get out of your investments. It is important to have realistic expectations of your financial future to avoid disappointment and rash decisions in volatile markets.

Step Seven: Maintain Your Balance

Just as in life you must maintain wellness by balancing work with play and eating a balanced diet, it is essential to maintain balance with your finances. By keeping a healthy mix of investments, your financial state will remain in balance.

Step Eight: Prepare for the Unexpected

Whether caring for children or planning for retirement, it is important to be prepared for any potential mishaps. Lambert recommends the following three strategies for preparedness.

  • Create your emergency fund by saving at least three months’ worth of living expenses
  • Consider your insurance options like health, home, and life
  • Plan your estate in preparation for the unexpected
Step Nine: Focus on What You Can Control

“Too often,” Lambert says, “Investors can become distracted by the latest headline or expert prediction. We believe one of the keys to success is to ignore these predictions and instead base your decisions on time-tested investment principles, which include diversifying your portfolio, owning quality investments, and maintaining a long-term perspective.”

Step Ten: Review Your Strategy Regularly

The one constant to be expected when planning for financial fitness is inevitable change. Change of the market, change of goals through aging, additions to the family, a new job, or retirement, and change that comes along with the unexpected. With never ending change comes the need to adapt. Your portfolio will need adaptation with your life and family growth and change, and a review will be needed to make the necessary changes.

Financial fitness can be planned at any age, but it is important to know that your strategy will grow and change. You must always be prepared for the unexpected and the worst case scenario by saving, diversifying, choosing qualified investments, and sticking with investments for the long-term.