Being Financially Fit: How to Get Through the Money Marathon of Life

Being Financially Fit: How to Get Through the Money Marathon of Life

August 12, 2019

Getting in shape physically is a common desire amongst most people. Usually this desire stems out of the craving to look good, but a wonderful side effect is that your body is healthier and lasts longer.

The same principles apply when talking about money, being financially fit is awesome because you get to do whatever you really care about, but it also protects you in times of emergency.

Today we are going to go through a few “workout plans”, ranging in difficulty from “I have never saved a dime in my life” to “I have 100k saved up and have maxed out my retirement accounts every year since the age of 18”.

No matter where you are on the money spectrum (silly spender, a money saver, or intelligent investor) there will be something here for you!

Silly Spender

If you are someone that struggles to save, no matter how hard you try, we will put you in this category. It doesn’t necessarily mean you CAN’T do it. It just means nobody has taught you how!

First things first, I need you to check your bank accounts or credit card statements over the past month or two. Put ALL of your spending items into categories, and just analyze them for a few moments.

Does anything look out of line to you? Is your rent 75% of your monthly income? Did you splurge too much on some new clothes at Zara?

Lets focus on where our money is going first. Put the most time on the big ticket items.

The big three are:

• Housing
• Food
• Transportation

If we can optimize these 3, it will VASTLY improve your money position. I wrote a blog post about how budgets generally don’t work for most people (“Budgets Usually Dont Work, Here is How to Fix That”) and I stick by that claim.

What you need right now is a playbook - even at a high-level will be helpful. Count up how much you make after taxes and subtract out the big three expenses we just spoke about.

Now think of ways you can optimize, some ideas ranging in extremity could be:

• Housing: Find roommates, house hack, move
• Food: Only go out once per week, meal prep, quit drinking
• Transportation: Use public transport, Stop leasing your car, move

There is always something you can do. But as a silly spender, your first step has to be reigning in those outflows and optimizing the big three. This will give you the vital cash flow you need to save and invest, then you can head over to Zara with what you have left over!

Money Saver

If you are a saver by nature, but are too afraid or don’t know enough about the markets to begin investing your money, this section is for you!

You have some money saved, you just don’t know exactly what to do with it! You know that inflation is killing your purchasing power (because you read this blog post!) So let’s run through a checklist to ensure that you are ready to put that cash to work!

If you are doing these things, you can start investing:

1. You have no bad debt (credit card, student, car, etc.)
2. You have 6-12 months of expenses saved up in cash (Use a High Yield Savings account for this!)
3. You have a positive monthly cash flow (You make more than you spend)
4. You have read and understand how the stock market works (part 1 & part 2 here)

Did you check off all of the boxes? Then put that extra money to work! Since you have already read the details on how investing in stocks works - here are a few extra tips if you are just starting - I would recommend following this ladder.

• Max out your 401k if you can - at the minimum if your company provides a match - contribute to the match
• Max out a Roth IRA - This is 6k per year that will compound tax free for the rest of your life - buy something easy like VTSAX from Vanguard or FZROX from Fidelity and keep contributing every month/year!
• Start investing in taxable accounts - This is invested money that you can sell and pull from any time without penalty. Note that all dividends and capital gains will be taxed at your capital gains rate. Hold your investment for over 12 months to get a more beneficial long-term capital gains rate.
• Save for short/medium term goals - in a SEPARATE high yield savings account than the one your emergency fund is in

If you can follow these steps - you will be WELL on your way to financial independence. Just make sure to keep a bit of money in your plan for fun and games :)

Intelligent Investor

Hello, sensei. You are in this category if you have a solid retirement contribution plan (maxing 401k/Roth IRA), investing in taxable accounts, and maintain over 12 months of living expenses in an emergency fund.

You are probably an analytical person by nature and enjoy optimizing things just for the fun of it. If this sounds like you, congratulations! You are cruising towards total financial freedom. Well done.

I know you have also probably thought about these things before, but here are some things I would take a second look at:

Setup a Will - I know this is kinda morbid. But you have a solid nest egg built already and you don’t want it to go to waste or be fought over. I have all of my beneficiaries set and there would be no questions if I was hit by a bus tomorrow. (Look both ways before you cross the street!)

Don’t try to do this all alone - there are other people like you out there (Hi!) and we want to talk to like minded individuals! How did you get to your position? What would you do differently during your climb? Find people you can connect with about this very high level money stuff, because trust me, I know it can be lonely sometimes. (The Financial Independence subreddit is a cool place to start, also check for ChooseFI Facebook meetup groups in your area.)

Keep your body as healthy as your wallet - being financially fit is really cool and all, but being dead before you can enjoy your money kinda sucks. Do everything you can to stay alive. I realized I was NOT being healthy about a year ago and have been fighting to change that ever since. (Daily workouts, mindful eating, and tracking progress really help!) If you are good with money, you can definitely be good at physical fitness too. They share the same principles!

I know this is a lot, but I think there will be something valuable here for EVERYONE! If you are interested in learning a bit more about financial independence - check out the book Your Money or Your Life by Vicki Robin - It is a time tested fan favorite for people into financial independence and early retirement!

In regard to financial fitness - Where do you fall on the spectrum? Is there a specific issue you have that you would like to talk through? Let me know! I’d love to chat through it with you.

MDAS

If you thought this was helpful, terrible, or somewhere in the middle, please leave me feedback in the form of a Direct Message on instagram @MakeDollarsAndSense, or feel free to send me an e-mail/text to the information on my Home Page. I truly appreciate constructive criticism and opposing views, so bring em on!

P.S. New blog posts coming your way every Monday!

Previous Article: Answering: Can I Trade Stocks With $1,000.00?

Next Article: How and When to Rebalance your Investment Portfolio