If you followed the steps in part 1 of this series, you should have a clear idea of how much you earn each month, how much you spend, and where your money is going. Setting up a budget is a big accomplishment, and it’s an important first step toward financial fitness. Now that you know where you stand, you’re ready to build a financial fitness routine that will help you stay on track and get you to the next level.
Are there things you’d like to do in the next 6 to 12 months, like taking a vacation or setting aside some money for emergencies? Are there long-term goals you want to plan for, like buying a house or saving for college? Decide what’s important to you, and then look at your budget to see where you can trim your expenses so you can save toward your goals.
Ever heard of a SMART goal? There is a whole body of research that shows you’re more likely to achieve goals when they’re:
If your goal is to be debt free, think up a specific way you can work toward that. For example, “This month, I will bring all my lunches to work, and pay what I would have paid for lunch toward my debt.” Then, set a new goal for next month. The more you flex this muscle, the more financially fit you’ll be.
If you have trouble staying on track, find a picture that represents your dream home or the trip to Europe you’ve been saving for, and put it in your wallet you so see it each time you’re tempted to spend.
If you’re paying off credit cards or other high-interest debt, consider consolidating your debt with a personal loan. With a fixed-rate, fixed-term personal loan, you’ll have one monthly payment and you’ll be able to circle the date you’ll be debt free. You may also be able to reduce your interest rate and improve your credit score.
Once you’ve consolidated your debt, it’s important not to run up a lot of new charges on your credit cards. The goal is to reduce your debt so you’re paying less interest over time and to keep your monthly payments consistent and predictable.
It’s hard to resist short-term temptations and put your money toward long-term goals. In the moment, the latest cool gadget can seem a lot more compelling than getting out of debt or saving to buy a home. Recent research shows that our willpower can be depleted as we make more decisions. So, if you already saved money by buying a store-brand product over the brand-name you like better, or chose a healthy snack over a piece of cake, you may not have the willpower to resist when those headphones you’ve been eyeing are on sale.
Setting up automatic bill payments and transfers to your savings account reduces the overall number of decisions you need to make. That way, you can save your willpower for times when you really need it, like when you walk past the donut shop.
If you have trouble sticking to your budget, try using cash for your optional expenses instead of a credit card. Cash helps you avoid the temptation to spend more than you have, so you spend less of your paycheck on interest for past purchases.
Some people take out cash at the beginning of the month for each type of optional expense, like restaurant meals, coffee drinks, or anything other expense category that’s more of a want than a need. Using cash makes it easy to see when you’re running low so you can cut back on your spending.
It can be hard to stick to your plan, but financial fitness is similar to physical fitness—you need to flex your muscles regularly to make progress. If you’re having trouble staying motivated, making identity statements instead of choice statements can help you affirm your goals. For example, tell yourself, “I’m saving towards the down payment for my dream home,” rather than “I shouldn’t be spending $30 on drinks tonight.”
Elite athletes often visualize themselves performing at their best, and that visualization helps them actually perform better. Stay motivated by imagining yourself reaching your financial goals and using an identity statement like, “I am financially fit.” Pretty soon, your new financial habits will seem less like running a marathon and more like a walk in the park.
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