A Simple Plan to Regain Financial Fitness

Most of us are not financially fit. We're often unaware of how our money is spent, carrying too much debt, and making unwise financial decisions. While it can be challenging to turn things around, it's well within your reach. There isn't a single correct path to financial prosperity; different solutions work for different people. However, some steps are critical regardless of the path you follow.

1. Know Where Your Money Is Being Spent

Many people have only a vague idea of their income and expenditures. The first step to financial fitness is knowing exactly how much you’re taking home and where it’s being spent. Websites such as Mint.com make it easy to track every penny spent each month, along with other similar services.

2. Set Short-term and Long-term Goals

Set a few goals that will cover the next month, year, and five years. How are you going to make these goals come to fruition? Having clear, measurable goals gives you a roadmap to follow.

3. Allocate Your Spending Wisely

A few simple guidelines will help you regain your financial fitness. If you’re already in a good place financially, these guidelines will help you stay there:

• Keep fixed expenses to 50% or less of your take-home pay. This includes rent or mortgage payments, utilities, car payments, gas, and food. These are the essentials you must spend money on each month.

• Use 20% of your take-home pay to build an emergency fund, pay off debt, and save for retirement. It’s recommended that your emergency fund cover your fixed expenses for 6-9 months. How you split the money between retirement, debt, and the emergency fund will depend on your situation.

• The remaining 30% can be used as you see fit. This is money you can spend on vacations, dining out, or hiring a landscaper. This money can also be allocated towards debt or savings, but be sure to enjoy your life along the way.

4. Eliminate Your Debt

Debt is the most insidious obstacle to financial fitness. Here’s how to tackle it:

• Be aware of your credit score. There’s no need to ever pay to get your credit score. Many free options are available, like CreditKarma.com. Lenders are obsessed with your credit score, and you should be too.

• Be careful with your credit cards. It’s always best to be cautious about using credit cards. If you don’t have the money in your bank account, think carefully about how critical the purchase really is.

5. Get Adequate Insurance

What could be worse than finally getting back into good financial shape, only to have it all wiped out by an illness or house fire? Protect your assets and limit your liability.

Tying It All Together

Reaching a point of financial fitness is a worthy objective. Not only does it give you the opportunity to relax and enjoy your life, but it also makes your future much more secure. Allocating your funds properly helps ensure you have enough to cover your needs and wants.

At Done with Debt, we understand the challenges of managing finances and eliminating debt. Our expert guidance and tailored solutions can help you achieve financial freedom. Don’t let debt control your life—take the first step towards financial fitness today.