Financial Fitness

by Sheila Sawka

If you are like me, and the rest of the world, you have once again made a New Year’s resolution to become more physically fit in 2017. I’m hoping this year my goal will survive past January 14. We have constant reminders of the state of our bodies as we look in the mirror and get dressed every day. These regular reminders may be motivating factors in setting our goal of getting physically fit. However, daily reminders are not as visible regarding our financial health. How about making 2017 the year of getting financially fit? Just like our bodies are in various stages of physical fitness, our finances also vary in their levels of fitness. The first step in making a financial New Year’s resolution is to evaluate our financial fitness level and then make an appropriate goal. We can’t expect to run a marathon if we can’t even walk a mile.

Financial Evaluation

In order to set an appropriate financial goal, we need to assess our financial situation and then prioritize our spending. Basically, an assessment consists of knowing what is coming in, what is going out, and what is left over (if any). A simple Excel spreadsheet or even pen and paper can accomplish this objective. Unless you are a budgeting fanatic, it may be surprising to find out exactly where your finances stand. There are many free tools available on the internet to help assess finances. The American Institute of Certified Public Accountants (AICPA) has a valuable website called Feed the Pig which provides several financial calculators, information, and tips. Another free online tool, offered by Intuit, is Mint. Not only does Mint provide assessment tools, but it can also help with financial goals.

Once you get that raw look at where you stand, ask yourself these questions:

  • Am I spending more than I earn?
  • What is my debt-to-income ratio? (visit Feed the Pig for a handy calculator)
  • What is my savings-to-expense ratio? (visit Feed the Pig for a handy calculator)
  • Do I regularly contribute to a savings account?
  • Do I have a retirement plan and am I on track with that plan?
  • What has changed in my life in the last year or will be changing in the current year?

If you found that your income is greater than your expenses or your income is equal to your expenses, then increasing income or decreasing expenses may be the New Year’s resolutions for you. Contributing to a savings or retirement account may not be an appropriate goal if your current situation is increasing debt. It is important to set your financial goal equal to your current financial fitness level.

Eight years ago I was a single mom with five children working in a day care center. My financial fitness level was rock bottom. It was not possible for me to decrease expenses any more so I had to increase my income. I made a goal to go back to school. It took four long years and much mental agony and stress, but I accomplished my goal. Since my financial fitness moved up a level, so have my financial goals.

Prioritizing Financial Goals

If you are not quite ready to run the monetary marathon, what should be the first financial fitness step? Here is the part most of us do not want to hear. Step one is to make and follow a budget. Why do we cringe when someone mentions the word budget? Perhaps budgets are restricting to our former free spending way of life. Maybe we wince because budgets require accountability and work. If you need some motivation and/or help preparing a budget, please refer to prior articles wonderfully written by Jonyce Bullock here on Aspiring Mormon Women. I’m a firm believer that every dollar needs a home. Free floating dollars usually end up hurting our fitness level. Making and following a budget helps to ensure every dollar is put to its best use and that it aids in making and keeping financial goals.

Alright, we have completed our financial assessment and created a budget. What’s next? I’m a huge fan of Dave Ramsey and the way he prioritizes financial goals with The 7 Baby Steps. The basic idea is to complete each step sequentially. Here is a summary of the steps:

  1. Set aside $1000 to start an emergency fund. (The idea here is to decrease the chance for future debt.)
  2. Pay off all debt except the house. (Dave recommends starting with the smallest balance and working your way up.)
  3. Put 3 to 6 months of expenses in savings. (Calculate how much you need and set a monthly savings goal.)
  4. Invest 15% of household income into retirement. (Research the best options to fit your needs.)
  5. Start a college fund for children.  (Help your children start off right by not racking up student debt.)
  6. Pay off the house early. (What would that be like, right?)
  7. Build wealth and give. (And enjoy financial freedom!)

For more information on these steps and additional tips, visit Dave Ramsey’s website.

After finishing school, getting remarried, and gaining five bonus children, my husband and I have some work to do on our financial fitness. We have been working on Step #2 for a while and are getting close to being debt free (minus the house) and it feels so good!

Success Past January 14

Why do most New Year’s resolutions fizzle out soon after the year begins? It seems like I always have great ambitions at the end of December, then my high aspirations get forgotten, set aside, and neglected. According to George T. Doran, my goals in the past were not “SMART”. Here are some SMART tips and considerations for making successful goals:

S – Specific: If your goal is to get out of debt, what is your plan? Which debt will you tackle first? How much will you pay and when? If your goal is to decrease expenses by eating out less, an example of a specific goal would be to prepare a home-cooked meal at least four times a week.

M – Measurable: A successful goal will have an indicator of progress. Financial goals are easily measurable. Track your progress using a spreadsheet, MINT, or another app. Reward yourself for reaching certain levels of progress.

A – Assignable: Who will do what? If you are working toward financial goals in a relationship, it is important that each party is invested in achieving those goals.

R – Realistic: Evaluate your goal. Make sure you have considered all aspects. Leave room in your budget for fun and for unforeseen events.

T – Time-related: Setting a deadline is crucial for financial goals. If you want to pay off all debt in two years, what does that make your monthly payment? Is it realistic?

Another tip to having successful goals is to write your goal down and set reminders for yourself. I’m obsessed with sticky notes. They are everywhere in my life. I know that if I want something done, it better be either in my phone or on a sticky note. What works for you?

Let’s make 2017 the year for becoming more financially fit. Money certainly does not create happiness, but being financially secure can create a feeling of peace and can help avoid heartache in the future.

One final thought from Sam Allred, a leadership trainer:  “Excellence is rooted in continuous improvement. It is never an accident; it is always the product of a purposeful effort. While few travel its disciplined path, those who do enjoy an uncommon view”.

Good luck with your goals this year. Please leave comments for any additional tips that have worked for you in the past or share what you’ll be working on this year.

 

Sheila Sawka is a CPA working for Squire & Company, PC, where she is a member of the Audit and Assurance Services Practice Area.  Sheila received her MAcc from the University of Utah.

 

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