Enhancing Your Financial Fitness in the New Year
Katie Martin, CFA, CFP®
January 6, 2021
‘Tis the time of year for New Year’s resolutions. Whether you’re a big believer in them or not, there’s no denying the change of the calendar marks a good time to reflect on our goals and the steps we’re taking to achieve them. A quick Google search on the most common resolutions for 2021 revealed that, not surprisingly, improving physical health is top of the list for many. A close second, though, is improving financial health. This got me thinking about how much these two – and how you build a lifestyle to get there – have in common.
Know the numbers
Weight loss is math – you need to burn more calories than you take in. One of the first steps is getting on the scale to see what you weigh today, followed by identifying your goal weight for the future. Your fitness coach will typically recommend you then track your calories so you know if you’re on track to reach your goal.
Financial fitness works the same way. To reach your goal, your assets need to grow by more than you spend. You start by identifying what your net worth is today, and then you figure out how much you will need to have in the future to achieve your goal. Knowing how much money comes in, how much you spend, and what you spend it on helps you understand if you are on track, as well as how long it’s going to take you to achieve that goal.
Everything in moderation
I don’t know about you, but I don’t do well when something is “off limits.” If someone tells me I can’t have dessert, it’s all I can think about! This why restrictive diets are never going to work for me. For the same reason, I have always hated the word “budget.” It feels too constrictive, and I right away want to rebel against it.
However, I can get on board with a more moderate and reasonable plan for eating generally healthy but allowing myself to occasionally have those things I really like, in exchange for not wasting calories on food that doesn’t do much for me. Budgets are great tools for doing the same with money. If we shift our mindset to think of a budget as a way to see where our money is going, so that we can stop spending money on stuff we don’t really care about in order to have more for the stuff we DO care about, it can be really powerful!
Make it personal
We all have different fitness goals – maybe it’s to run a half marathon, lose 10 pounds, or to simply feel stronger. We also have unique backgrounds, experiences, and emotions that contribute to how we think about and approach our physical health. As a result, we each need a unique plan tailored to us to be successful in achieving our goal.
The same goes for our financial fitness journey. We all have different goals we want to achieve. While we may each identify retirement as a big one, what retirement looks like for you may be very different from me. We also bring different emotions, beliefs, and values about money to the table, which can have a significant impact on what we prioritize in our finances. To be successful, we need a financial plan in place that is customized for what is most important to us.
It is WAY easier to slack off on a workout when I’m in my basement than it is when I’m in a class with 40 others. In the same way you hire a fitness coach to hold you accountable on your physical fitness, a financial advisor can keep you on the right track for your financial fitness. I know I’m far more disciplined about going to the gym or watching what I eat if I have to answer to someone else. If you’re ready to get serious about working towards the financial goals you’ve identified, finding a financial advisor you trust to put you on the right track, give you a pep talk when you need it, and celebrate your success is a critical next step.
I don’t much care for the phrase, “new year, new you.” Maybe I’m just not capable of that much change at once, but I’ve always had a hard time believing I would be able to do something so drastically different on January 1 than I did on December 31 to create a whole new me. It feels overwhelming and destined to fail from the start. Besides, who wants to be a whole “new you”, anyway? I’m quite confident there’s a lot about you that’s already pretty great. But, I do believe that if we have a goal that’s important to us and focus on specific, measurable, achievable, and realistic steps to get there, we can accomplish great things in 2021!