by Glenda Wentworth, Extension Agent, Family & Consumer Science, Eagle County
Practicing the habits of managing money is similar to becoming physically fit. It is comparable to running a race such as a marathon. It doesn’t happen overnight. Your time and your money are both limited resources. It takes training to become physically fit to run a marathon; similarly, it takes time, attention and focus to become financially fit for the lifestyle you want to lead. Neither one happens unless you develop and execute a plan.
When planning to run a marathon, you chart your workouts. You come up with strategies that help improve your stamina and strength. Eventually, you are able to run for a long time. Think about the workouts that will enhance your financial fitness over the long haul. You will need to design a plan and use different strategies so that you build a foundation for a lifetime of financial security.
Workout Number 1: Set yearly goals
When I registered to run a marathon; I knew I was going to have to set training goals to be able to pull off running 26.2 miles. I knew that if I didn’t train, I wouldn’t succeed in finishing the race. Before you decide how your money must be used, you need to determine your goals. In managing your money, setting goals is the first important step to getting a strong start on being financially fit. Goal setting will guide you in deciding where your money should currently go now and in the future. Writing down your goals and figuring out how to work towards them is the first step. Goals should be specific yet realistic. They may change over time as your income or circumstance changes. However, the earlier you start planning, the easier it will be to reach the end goal of being financial secure.
Workout Number 2: Take control of your spending
Just like I had to take control of my training to become physically fit; financial fitness comes from making and sticking to a spending plan. It puts you in charge of where your money goes. Without a scheduled training plan to enable me to run 26.2 miles, I would not have trained correctly. Likewise, without a spending plan, you can lose your way and get into unhealthy spending patterns. A spending plan is a way to show how your money will be used for a specified amount of time. Prioritizing spending, establishing savings habits and keeping consumer debt to a minimum enables you to achieve your financial goals.
First, pay for the necessities such as rent or mortgage, utilities, transportation, insurance, food, etc. Second, contribute to savings for important goals and emergency funds. Lastly, spend on such non-essentials as recreational shopping and dining out. Your choices do have consequences. If you don’t have it; don’t spend it. If your income doesn’t cover all your needs, make cuts in spending, increase your income, or do both.
Workout Number 3: Make savings automatic
Rain or shine, I had to be self-disciplined to train in order to be prepared for the marathon. The same is true for savings. Make saving money a regular habit by paying yourself first. If money is tight, try to save by cutting back somewhere else. By making savings an automatic habit, you practice self-control. Moreover, when running many miles, there are always possibilities for unexpected injuries. Similarly, unanticipated financial expenses will occur. Therefore, create an emergency fund to cover these costs so you will not have to borrow money to pay your regular monthly bills.
Workout Number 4: Avoid debt
I knew I would not be able to use a “get in shape” credit card in order to run a marathon. I would have to put in the time and effort to complete the work outs in order to be prepared for the race. Therefore, consider whether buying something now by promising to pay for it at a later time will leave you with debt obligation. Credit can be a great convenience or a trap that lands you in a spiral of paying for something over and over again. It is easier to avoid debt if you don’t use credit to balance your monthly spending plan.
Workout Number 5: Make money work for you by investing
On the day of the race, I strategized my game plan by having knowledge of the marathon route. Mapping out your route to financial wealth by learning to live on less than you earn will move you closer to being financial fit.
Nothing says “delayed gratification” like crossing that finish line after several hours of constant pavement pounding. Recognizing that I had to sacrifice some things in order to train and run a marathon made the finish line that much sweeter. Building wealth is about delaying gratification. Forgoing current consumption to achieve future goals is about taking some of the money you save and putting it to work so that it makes you even more money. In order to invest, you have to practice delayed gratification.
After all that training, I was physically fit to run the marathon. It felt great to cross the finish line and know I had accomplished what I set out to do. I had met my physical fitness goal by sticking to my workouts, putting in the time, and completing the race. Remember, it takes time, effort and training to becoming financially fit. Make sure you are taking steps in managing your money by setting goals, making a spending plan, making savings an automatic habit, avoiding debt, and investing. If you try these five financial workouts outlined here, you’ll be on your way to becoming financially fit.