How’s your Financial Health?
Do you regularly do your Financial Workouts in order to be financially healthy?
Can your financial condition sustain you for the next 10-20 years like a marathoner or just 3-6 months like a fun runner?
Financial Fitness is like Going to the Gym
When you want to get fit and healthy, who do you look for?
You look for fitness instructor or a gym coach.
You pay the gym membership and the instructor for workout sessions.
They will measure your weight, vital statistics, and BMI (Body Mass Index).
They will ask you your fitness goals such as fat loss, strength, or stamina building and your timeline.
They will teach you about the right diet and nutrition and will ask you to regularly go to the gym and record your progress.
Getting financially fit and healthy is like getting fit and healthy physically.
You should also look for a Financial Fitness Coach, have a financial plan, and take action!
Financial Workout 1.0: Measuring Up!
If you want to take control of your finances, you need to start measuring it.
Write down how much do you earn and spend per month.
A list of income(s) and expenses is what we call a written budget.
The goal here is to make sure that your income(s) is greater than your expenses resulting to a Positive Cash Flow and not a Negative Cash Flow.
You should also pay yourself first by saving and investing at least 10-20% of your income.
INCOME – EXPENSE = SAVINGS (wrong)
INCOME – SAVINGS = EXPENSES (correct)
When you already know how much you are earning and spending, it is time to measure your net worth, which is:
Net Worth = Assets – Liabilities
Assets is everything than you own (cash in bank, stocks, house, car, etc) while liabilities are everything that you owe (credit card loans, mortgage, car loans, personal loans,etc.).
Hopefully, your assets are greater than your liabilities giving you a positive net worth.
If your liabilities are greater than your assets, then you have a negative net worth which means you are drowning in debt.
As you can see, your monthly income and expenses will decide if your net worth is going positive or negative.
Having a positive cash flow means you are adding money to your net worth while a negative cash flow results to a decreasing net worth.
Financial Workout 2.0: Goal Setting!
When you go to the gym, they ask you your goal and timeline such as losing weight in 3-5 months or increasing strength in 2-4 months.
This will help the trainer do a plan for you, what gym equipment to focus on, and group workouts to attend.
In Personal Finance, it is the same.
You should have a goal or goals such as having a fund for a Grand Vacation, House, Car, Retirement, or College Fund.
You should also have a timeline such as 5, 10, 15 or 20 years.
This will help you compute how much you should save, for how long, and what financial instrument(s) to invest in.
Financial Workout 3.0: Train Hard and Track your Progress!
Train hard and stick to the plan!
Be committed to your budget and savings and investment plan.
Read books and attend seminars about personal finance and investing.
Nobody became rich by being stupid.
Same as with training your body in the gym you must train your mind and emotion.
Use an app (e.g. Spendee) to track your daily income(s) and expenses.
Then, have a weekly review of your actual spending vs. your budget.
Going back to Financial Workout No. 1, “You can’t manage what you can’t measure.”
Financial Workout 3.0
To end, always remember that like having a great body, being financially fit entails work and sacrifice.
- Financial Workout 1.0: Measuring Up
- Financial Workout 2.0: Goal Setting
- Financial Workout 3.0 : Train Hard and Track your Progress
Your Millennial Wealth Planner,
Harold Q. Gardon, CWP, CEPP
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