Last updated : Friday, January 21, 2011

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4 Easy Tests to Determine Financial Fitness

If you're like most people, your list of New Year's resolutions probably included something about getting fit and fixing your finances. But did you know how closely the two are related? Believe or not, the same things that make you successful at the gym are also what make you flourish financially: strength, speed, flexibility, and endurance.

Strength: Your Savings
Your savings account(s) should be the foundation of your finances. Especially if your checking account doesn't earn interest, it's important to not only save 10 percent of your income in a dedicated account, but to have three months' salary on hand in case of emergencies. As the old adage goes, "Pay yourself first!" Make it even easier by setting up an automatic transfer from your checking to your savings every time you get a paycheck. Increase the amount as your ability to save gets stronger!

Speed: Your Dwindling Debt
Unless you've recently made a big purchase or you are financing college, your debt should be shrinking rather than growing. Do you know exactly how much debt you have, and what are the interest rates are on each credit card or loan? How quickly can you pay off the one with the highest interest rate? While balance transfers can be an option, constantly shifting your debt doesn't help you pick up speed. Pick one card or loan to pay off this year and your financial fitness will improve without it seeming like you're running up a mountain.

Flexibility: Your Investments
Once you've built up the strength of your savings, it's time to make sure they're flexible. Especially with today's economic climate, it's important to diversify your investments in order to protect your assets. Make sure you have several retirement accounts. A good place to start is to enroll in everything your company (and your spouse's company) offers. Making sure you own both stocks and bonds can help your money grow while protecting it from the financial volatility of the market.

Endurance: Your Budget
It usually takes a few laps around the budgeting track to get the hang of sticking to a budget, but budgeting is a marathon, not a sprint. When you get discouraged, don't stop keeping track of your spending. Instead, brainstorm ways to cut back on areas that need improvement. Work together with your spouse, or enlist the help of a friend to keep yourself on track. Stay within your budget for a year and consider yourself a gold medalist!

For more money tips, go to the At Home section.

Clarky Davis is a debt management expert with more than 10 years of personal and professional experience. As The Debt Diva she offers financial fitness education and "real world" money saving tips to help consumers trim their spending in just about every area of their lives. As The Debt Diva, Davis has appeared on "ABC News Now," "Fox Business," "Fox and Friends" and "Nightline."

 

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