6 simple tips to start becoming financially fit

December 21, 2020

Getting financially fit is just like getting physically fit. If you want to lose weight, you create a plan to achieve that goal. First, you set a goal for how much weight you want to lose and by what date. Then, you plan out how you’ll eat better and exercise more. Perhaps you set aside time to cook healthy lunch and dinner options in advance, with time built in to go to the gym 3 times a week.

As you start implementing your plan, you track your progress along the way. If you’re not losing weight at the rate you were hoping, maybe you adjust your meal plan. Or maybe you decide to mix up the type of exercise you’re doing; for example, adding more cardio to your workouts instead of weight-lifting. Or maybe you reevaluate the timeline of your goal altogether.

The point is, getting financially fit is exactly the same process. Before implementing new habits, you have to know where you want to go. Having specific, lifestyle-based goals helps you create a more effective plan and keeps you motivated to stay on track. And as you start implementing the plan, tracking and evaluating your progress will allow you to adjust your goal if you need to.

We think being financially fit is just as important as being physically fit. And just like getting physically fit, the process becomes easier as the new things you’re practicing become habits. If you want to stop putting off financial fitness, here are 5 simple steps you can dive into today.

6 simple tips to start getting financially fit today

1. Set your goals

Setting goals is a fundamental part of the process. Specifically, lifestyle-based goals are the best way to go about this. Lifestyle goals reveal what you hope to do and how you want to feel once you're financially fit, rather than simply stating numerical goals with no plan for what that money will be used for.

So get specific! What are you saving for? Is it for a feeling of security if an emergency happens? Is it for an exotic vacation? Is it to buy a house and feel the satisfaction of finally becoming a homeowner? Setting financial goals in lifestyle terms is more motivating. If you go off track, you’ll realize more readily what it is you’re giving up.

2. Track your spending

Once you’ve set your goals, it’s time to assess your financial situation. Continuing with our analogy to physical fitness, it’s the same thing as stepping on the scale, evaluating what you’re eating now (perhaps how many calories you’re consuming), and understanding how much time you currently spend exercising.

With financial fitness, you need a solid understanding of where your money is coming from and where it is going before making changes. We recommend tracking your spending for at least one month, but two months will give you an even better picture. At first you might be shocked at just how much you’re spending at the grocery store or on eating out each month, but this step is important so the changes you make are intentional.

3. Create a budget

This step is related to Step 2, because you’ll probably have needed to create a budget to start tracking your spending. After you’ve tracked it, it’s time to optimize it!

Hopefully in Step 2 you realized you were spending more money than you needed to in certain categories. Maybe you were spending too much money at the bars each month, or more money than you thought you were on new clothes or shoes.

Categories that aren’t necessities provide an opportunity to put that money elsewhere, whether it’s towards paying down debt or boosting a savings goal. Remember to look back at the goals you created in Step 1 and decide how you’re going to get there.

4. Pay yourself first

Now this is a big one, because this step helps you stay on track. When you get your paycheck, budget your money that very same day (or, you know, sooner rather than later). Allocate whatever amounts you’ve decided on to pay down debt balances or boost your savings goals before waiting until the end of the month. If you just spend as you normally would and plan to save “whatever’s leftover”, you’re more likely to save little or nothing at all.

A good way to think about this is to give every dollar a job. If every dollar has a job the moment you get paid, you’ll be able to visualize how you’re damaging your chances at reaching your goals. When you have to take money out of those categories to pay for other things, like a night out with your friends, this visualization may help you be more in control of when to say no.

5. Build your credit score

For big goals such as buying a house or financing a vehicle, you’ll need a good credit score. An important component of getting financially fit is to build your credit score as much as you can so lenders view you as an eligible borrower. And the better your credit score, the better terms you’ll be offered on a loan. You qualify for lower interest rates with a better credit score, which can result in huge savings down the road. It’s a win-win!

There are lots of ways to start building your credit score. One simple way is to start paying down your debt, and make sure you’re making payments on time.

But if you don’t have any debt, or you’ve never applied for any credit, you’re basically starting from scratch. So what to do? You might consider applying for a credit-building credit card. We recently posted an article about this strategy, which you can read about here.

Or you might consider using a tool like Loqbox, which is potentially a better option than applying for a credit card because it allows you to build your credit history as you save money, so you’d be improving your financial fitness in two different ways. Learn more about how Loqbox can help you improve your credit and save money here.

6. Use the right tools

One of the most important parts of getting financially fit is to find and use tools that are right for you. Just like you wouldn’t follow someone else’s customized exercise plan word-for-word, there’s no one right or wrong way to get financially fit.

When it comes to budgeting, you may be more likely to keep up with budgeting if you sign up for a service that automatically links to your accounts, including bank accounts, retirement accounts, and even loan accounts. These types of apps can auto-import transactions, cutting down on the time it takes you to budget. There are lots of options out there, but we personally recommend Mint to get started.

And when it comes to building your credit history and improving your credit score, consider a tool like Loqbox. It’s an easy way to build credit and lets you save while you do it, all for free.

Loqbox is no longer available in your state. If you're an existing member you can still access Loqbox here.