Being fit means being healthy, and just like physical fitness, attaining financial fitness involves time, effort and focus. This check-up highlights what it takes to achieve financial fitness and helps you see just how “fit” your finances really are. Read more.
Determining your financial health involves looking at your overall situation as well as identifying the key steps required to meet your individual goals. Though every person’s situation varies depending on age, personal needs, family and work circumstances, there are six common components to overall financial fitness. You need to find the right balance for you:
- Set Financial Goals – Think about your long-term life goals – personal and professional – and what it will take to achieve them. Your ‘to-do’ list needs a budget and a long-term action plan that considers possible changes and needs at various life stages. While you may not be ready to take a big step in your 20s, if you envision home ownership or a family in your future, it is wise to begin saving early. As you enter your 40s and 50s, consider where and how you want to live in retirement so you can adjust your plans to make those ideas a reality.
- Practice Productive Habits – Just as regular workouts and nutritional eating lead to physical fitness, good money management behavior will put you in a stronger financial position. Budgeting carefully and making savings your priority, even before monthly expenses, puts you on the right path for the long term. Starting early is the best way to accumulate assets and get a head start for big-ticket items such as education, housing and a retirement fund. A person who starts investing $285 per month at age 25 could accumulate $1 million by age 65 with an 8% compounded rate of return. But the numbers change significantly if you start later to reach the same goal – you would need to save $667 a month if you began investing at age 35, or $1,686 a month if you started at age 45.
- Consult a Professional – Taking care of your personal health sometimes requires a knowledgeable expert, and the same goes for your finances. A financial advisor will guide you in financial planning, setting goals and taking action in line with your personal values, creating the right long-term plan for your individual needs. Starting in your 20s puts you on track for the future and seizes the growth opportunity presented by lead time. The plan will change as your needs and goals do, and your Northwestern Mutual financial representative can connect you with the right expertise and tools along the way. Financial fitness also includes having an annual check-up to review your plans, make any changes and adjust tools or solutions accordingly.
- Leverage Available Resources – Be sure to take advantage of the wide range of financial information and education available to help you explore your many options. Whether you use online calculators or savings tools such as educational savings plans, retirement savings accounts, Roth IRAs, annuities or other vehicles, you want to leverage the resources that can help you the most. Your choices will depend on your specific needs or life stage, and your financial representative can guide you to what is best for your situation.
- Protect Against Risk – Many people take more financial risks when they are younger, to pursue financial growth, but become more conservative to preserve assets as they age. At all ages it is important to have a foundation of insurance that protects you and your family from potential losses. Financial fitness includes having 3-6 months’ of expenses in an emergency fund, as well as coverage for financial security risks including disability income insurance, health issues, life insurance and long-term care. Insurance costs typically increase with age, and it is best to secure these protections before health issues or other circumstances affect your insurability. A regular savings habit will build a cushion that offers greater protection in unexpected circumstances.
- Find the Fun and Enjoy Life – Whatever your financial fitness level, don’t lose sight of the reasons for living. The choices you make today have implications for tomorrow, and there are tradeoffs, but the ultimate goal is to be happy. Preserve your health and nurture relationships that are meaningful to you. Spend time with people you love, pursue creative outlets, keep learning, and enjoy natural beauty, music and laughter. Financial security is important, but so is focusing on people and activities that give you joy.
Like any type of fitness, financial fitness is a long-term process that takes commitment and focus. It helps you to pursue the type and quality of life you aspire to. Your financial representative can help you find the right formula to enjoy the journey and be financially healthy along the way.
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