How to get financially fit in six simple steps

In my last post I looked at why getting financially fit is the next big wellness trend. We discovered that because money is the leading cause of stress for millennials, getting on top of our finances can have a massive impact on our overall wellbeing. And that in reality it’s as important as looking after our mental and physical health. So today I’m going to look at how we can get financially fit in just six simple steps.

If getting your finances into shape is something you’ve never done before then the thought of it might make you feel a little queasy. Stick with me. Just like going back to the gym after a break, the hardest part is showing up. Once it becomes a habit again, it’s easy, fun and you wondered how you lived for so long without all the benefits it provides.

6 simple steps to get financially fit

1. Review your goals

What are your financial goals? Whether you want to get on the housing ladder, save for a holiday, buy a car or retire at 40 — knowing what your goals are helps you to stay focused and motivated in achieving them. Goals give us a roadmap to follow and help us define what’s really important to us in life.

2. Take a financial health check to work out where are you now

Before you’re able to work out a physical fitness plan, you need to understand how fit you are today. The same is true with your finances. Take time to sit down and go through your incomings and outgoings to get to grips with how your money is moving each month. Looking at all your accounts, cards, bills and debts — where do you stand? Do you have debts to pay off? Do you have savings? How resilient are you if the unexpected happens? A good rule of thumb for most people is to have three months worth of bills available in an instant access savings account just in case.

3. Plan your budget

For many people the word ‘budget’ instantly calls to mind something akin to a calorie-restricted diet where it’s all about limiting your spending and cutting back. And sure that’s one way of looking at budgeting. But there is another way. A way that’s more about freedom than limitation.

Another way of looking at it is that budgeting is about being intentional and deliberate with your money, so that you can get what you want with your money rather than accidentally spending it all on the things you don’t need. No matter what your salary is, budgeting can help you enjoy your money more.

A well-planned budget accounts for regular costs like your rent or mortgage, bills and subscriptions as well as giving you an allowance for things you enjoy such as socialising, new clothes, gadgets, day trips and spending time with the family. You may also want to set some money aside to go into a savings account to build some extra security. Building this into your personal budget is a great way to make sure you hit your financial goal.

4. Save before spending

When asked what the secret behind their success is, people who are amazing at saving frequently cite transferring money into a savings account via an automated payment on payday as their top tip. As long as they choose an affordable sum to pay each month, they won't even notice the money is gone. To quote Warren Buffet, “Do not save what is left after spending, but spend what is left after saving.” And to achieve real results make sure you’re saving regularly as this is the fastest way to build savings. For example, if you save £50 a month every month for a year you’ll end up with £600 in savings.

5. Build your credit score

Just as your bmi and heart rate can give you indications as to your health, and your running pace or cycling speed can give you indications as to your fitness — your credit score can reveal your financial health. Yet amazingly, 49% of adults have never checked their credit score. And this rises to 72% for young people aged 18-24.

When it comes to checking credit scores, many people are often surprised to find that their scores are low because they have not been irresponsible or reckless with their money in the past. Nor have they ever missed a payment. However low credit scores can occur when there is no credit history to assess. Young people in particular fall into this trap as they may not have taken out a loan or a credit agreement of any kind before. As a result financial institutions have to regard their ability to handle credit as an unknown.

Unfortunately, too many people find out too late that this is the case. For instance in the middle of trying to buy a house when they are struggling to find a lender for their mortgage.

Similarly too few people are aware that with a good credit score they can save £1000s on mortgages, loans and credit cards.

But the good news is this pain is easily avoided by getting into the practice of building financial fitness.

It's free to check your credit reports online. Try it now using the following services:

• ClearScore (uses Equifax data)*
• Credit Club (uses Experian data)
• Intuit Credit Karma (uses TransUnion data)

From there you can create a plan to start building it.

* Just to be super transparent if you sign up and follow this link although it's free for you, Loqbox may get a small referral fee from ClearScore. This helps us to continue to improve our service for our customers and keep Loqbox free.

6. Use the right tools

Tools like Loqbox help you build your credit score and learn about how the financial system works, while you save, for free. So whether you’re just starting out, tackling financial challenges or have a dream in mind, we help people build their financial fitness and achieve their goals. If you’re ready to start building your financial fitness find out more about how Loqbox can help you at loqbox.com.

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