When thinking about financial fitness, it is beneficial to perceive it similar to physical fitness rather than as an inherent quality that only a few individuals possess. Not many, if any, are capable of running a marathon competitively without any prior training. The same is true for personal finance. Not many are able to meet large financial goals or emergencies without prior financial preparation. A grim reality is that many are unable to manage small financial emergencies with ease. A survey conducted by Bankrate reported by CNBC states that “56% of Americans can’t cover a $1000 emergency expense with savings.”

Before we address how financially fit you are, let’s define what financial fitness is. Financial fitness is defined as the level of ease with which you are able to meet large and small financial goals and emergencies and your ability to take care of your basic living expenses. 

EMERGENCY SAVINGS

The first measure of financial fitness is how prepared financially you are to handle emergencies. Emergencies are a part of life, especially those of the financial type. The average person will experience loss of employment, car issues, or some kind of medical emergency once in their life. With that surety, it’s important to have ample emergency savings. Depending on the type of emergency, you will need adequate savings to meet it. Common emergencies to keep in mind are loss of employment, car mechanical issues, medical/dental emergencies, and some household emergencies. Household emergencies are often overlooked, but every now and then faulty wiring will need the attention of a professional electrician. Many professional household visits require a fee that requires having savings.

INSURANCE

The second measure of financial fitness is how much insurance coverage you have. Depending on where you are in your life will determine the level of insurance you will need. The different types of insurance to keep in mind are home/rental insurance, life insurance, car insurance, and more.

CURRENT JOB SKILLS

In order to meet financial goals and tackle financial emergencies, you will need to earn money. Unless you have inherited a fortune, you will have to exchange your skills on the market in exchange for money. Which brings us to our next measure of financial fitness: are your current skills sufficient enough to earn you enough money to cover your basic needs, meet financial goals both short- and long-term, and cover emergencies? In many occurrences people believe they are not making enough money, but the true culprit is they are mismanaging their money and overspending. If mismanagement and overspending are not an issue, then sometimes a person must evaluate their current skill and if they need to be upgrading. That could be more education, or more experience, or just finding a new job that offers more money.

ON TRACK FOR RETIREMENT

The day will come when we all have to hang it up, as it pertains to working. How long we are able to work will depend on our career choice, our ability to perform those tasks, and our choice. Unfortunately, many are forced to continue working past the age of retirement not out of love for their job but because they don’t have enough retirement money to get through retirement. An even worse scenario is that many are forced to retire without having sufficient money to support them through their retirement. The younger you are, the more time you have to save and invest for retirement, but don’t use that as an excuse to not start now. Also, for those that are closer to retirement age and don’t have a suitable retirement fund, there is still hope. You may have to work longer and save more aggressively to meet that goal. In order for you to know if you are on track to meet your retirement goal. You must first determine when you want to retire, what type of lifestyle you want and the cost of that lifestyle, determine the cost of that lifestyle in today’s dollars, and begin to save towards it. Remember there will always be setbacks; that is why it is important to figure that out as soon as possible.

DEBT

Another measure of financial fitness is the amount and type of debt a person carries. Carrying large revolving debts (credit cards) and personal loans used on frivolous expenditures can put a person on shaky financial ground. Debt should be used strategically to grow wealth and not used as a means to extend your purchasing power where your income falls short. Credit card debt should be kept as low as possible with the aim of paying off balances in full each month. If you have large credit card debts, you should create an aggressive plan to pay off those credit cards and avoid repeating the process.

Personal loans can be a good way to accomplish small financial goals where your personal savings may be insufficient because you did not have enough time to save. If the circumstance is time sensitive and you’re not allotted enough time to save, be aware of the interest rate of the loan and do not hesitate to pay it off early if possible. Using personal loans and credit cards to address emergencies should be a rare occasion. Having an emergency savings is paramount to being financially fit.

CREDIT SCORE

Your credit score is an important aspect of your financial fitness. The difference between a good credit score and a poor credit score is vast. A poor credit score can eliminate your access to credit cards, car loans, personal loans, and the ability to rent an apartment. If you do get access to credit with a poor credit score, your interest rate will be higher than normal, and some lenders will require down payments, deposits, and collateral. No one is born with good credit. Good credit is something you work towards. Take the time to work on your credit if you are planning to access credit for future financial goals.

YOUR PHYSICAL AND MENTAL STATE

How is your physical state? It is very difficult to address financial fitness or any other aspect of your life if you are sick. Something as simple as the common cold can shift your focus from your daily life to how miserable you feel with a stuffy nose or a cough. The old adage take care of your body, and it will take care of you holds true here. Also, if you’re in good physical shape and free from pain and aches, this will help you be more efficient and productive in all aspects of your life. Some form of activity/exercise, proper nutrition, and sleep can greatly impact your financial life for the better.

How is your mental state? As we mentioned earlier, your physical health is important to the journey of financial fitness, and so is your mental state. A person’s own mental state is very difficult to assess. You can start by addressing how you feel. If there are matters in your life that are causing you to feel down or you are feeling down without any clear reasons, seek professional help. Any diagnosis of any mental disorder such as depression, anxiety, or bipolar disorder should come from a professional. 

It is important to understand that the purpose of comparing financial fitness to physical fitness is to emphasize that no matter where you are in your financial journey, you can start now by making small changes and see improvement over the long term. It is important to not compare your financial situation to others and compete with others financially. This will do more harm than good. Competing with others will create a win-lose situation where setbacks will lead to negative emotions that will cause many to quit in the long run. Your goal is to put one financial foot in front of the other and move forward.

With that said, the purpose of being financially fit is to reduce the stress and burden of financial emergencies and increase the possibility of achieving financial goals. There is no denying that there are people out there that do not worry or stress about money. We may believe that these people are wealthy or have a vast knowledge about money, but that is not true. There are people that are from humble financial means and have a below-average knowledge of money and are quite content with their life. They are able to handle financial emergencies without having them break them down, and they are able to achieve financial goals in creative, non-traditional ways. This is why your state of mind is very important in your overall financial fitness. Dedicating your actions to the things you can control and not worrying about those you can not is one step in the direction of improving your mental state.

FINAL THOUGHT

When assessing your financial fitness, understand that you may be strong in some areas and weak in others. That is fine. The key is to see financial fitness as a work in progress. Seek as much help as possible not only in the area of your mental state but in any area you think you may need help. Do not go it alone. No person is an island, and all the aspects of personal finance are too complex to go about it alone.