Six steps to financial fitness
Just like a fitness routine strengthens your body, smart money habits can build a stronger, more resilient financial future. Whether you're just getting started or looking to fine-tune your finances, these six steps can help you take control of your money and feel more confident about what’s ahead.
Key takeaways
Track spending to see where your money is going. Understanding your habits helps you make different choices and find areas to cut back.
Create a budget that works for you. A simple spending plan can help you stay on track and prepare for future goals.
Tackle debt and build emergency savings. Paying down what you owe and setting money aside can boost your financial stability.
Start investing for long-term growth. Even small contributions to retirement accounts can make a big difference over time.
Just like hitting the gym keeps your body in shape, adding smart money habits to your life can boost your financial fitness. No matter where you are with your finances, there are things you can do to help you feel more in control of your money and more confident in your future.
Here are six steps you can take now in your financial health journey.
1. Track your spending
Knowing where your money is going is the first step to financial fitness. Just like stepping on a scale gives you information and feedback about your health, tracking your spending can give you a fuller picture of your spending and your finances.
Start by keeping a record of everything you spend for at least a month. You can jot it down in a notebook, use a spreadsheet, or turn to technology for help. Tons of apps make tracking your spending easier. Popular tools like YNAB (You Need A Budget), Credit Karma, Rocket Money, or even your bank’s own app can categorize expenses for you. These tools show you exactly how much you’re spending on areas such as groceries, dining out, subscriptions, and more.
Whether you’re using paper and pen, a spreadsheet, or a budgeting app, tracking your expenses may help you find areas where you’re overspending. Are you spending more than you realized dining out? Are those online purchases adding up? A budget helps you make conscious decisions about your spending.
2. Create a budget
Do you associate budgeting with strict limits on spending, treats, and fun? It doesn’t have to be that way. A budget is simply a way to understand and track money coming in and money going out. To create a budget, use an app, a spreadsheet, or a piece of paper to add up how much money you take home each month, list your monthly fixed and variable expenses, and estimate the monthly cost for each. The amount you place in each category is how much you plan to spend in that area. Make adjustments as you go and reset the budget at the beginning of the next month.
Look for areas where you can cut back to stick to your plan. If budgeting feels overwhelming, apps like EveryDollar or PocketGuard can provide budgeting tips and help you stay on track. Remember, a budget doesn’t mean doing without – it’s about money management and making intentional choices.
When you have a plan for your money, you’re less likely rely on credit for unexpected expenses. And if there’s money leftover at the end of a pay period, you can use it to chip away at what you owe or grow your savings.
3. Lower your debt
Paying down debt can improve your financial fitness and reduce your stress. It also frees up more of your income for saving, investing, or paying with cash more often. Start by listing all the money you owe, including credit card balances, personal loans, and car payments. Include the amounts, interest rates, and minimum payments.
There are two popular methods for tackling debt:
The debt snowball method focuses on paying off your smallest debt first while making minimum payments on the rest. Once the smallest is paid, move on to the next smallest. This method provides quick wins and builds momentum but may take longer.
With the debt avalanche method, you pay your highest-interest debts first while paying the minimum on lower-interest debt. This method reduces total interest paid and can takes less time to get out of debt.
The strategy you choose matters less than your commitment to sticking with your repayment plan. Consider setting up automatic payments to keep you on track and make more than the minimum payment whenever possible, which will help you pay off your debts faster.
4. Know your credit history
Your credit history and credit score affect your ability to borrow money, secure housing, and even qualify for certain jobs. Your score is based on information in your credit report from a credit bureau. Credit bureaus create your report based on information from banks, credit card companies, and other sources.
Start by checking your credit report to see how your financial decisions are impacting your credit score. You’re entitled to a free copy every 12 months from each of the three major credit bureaus (Equifax, Experian, and TransUnion). You can request a free report by visiting AnnualCreditReport.com, calling 877-322-8228, or sending a request by mail.
You can also check your credit score through your bank or credit union, online services, some credit card issuers, and certain nonprofit organizations, often for free. When you review your report, look for errors or signs of fraud that could drag your score down.
Looking to improve your credit score? Here are a few ways to start:
Pay your bills on time. Even a single late or missed payment can have a negative impact.
Lower the amount of available credit you’re using. The lower the percentage you owe compared to your income, the better for your score.
Avoid frequently applying for new credit, which can temporarily lower your score.
It’s good to know that checking your own credit won’t affect your score. This is a type of soft inquiry or soft pull, which isn’t visible to potential lenders when they view your credit report.
5. Build an emergency fund
An emergency fund helps you better prepare for life’s unexpected turns, such as car repairs, medical bills, or a job loss.
How much should you save? A good rule of thumb is to save three to six months’ worth of living expenses in your emergency fund, but how much you need depends on your financial situation. If saving months’ worth of expenses is overwhelming, putting away even $500 or $1000 can keep you from relying on credit cards in a pinch - or going without what you need.
Open a separate bank account for your emergency fund and set up automatic transfers from your checking to your savings account each time you get paid. You can also set up automatic payroll direct deposits to your emergency fund.
For best results, treat adding to your emergency fund as non-negotiable and use this fund for real emergencies, not vacations or impulse purchases. Having an emergency fund gives you peace of mind and protects your personal finances from unexpected setbacks.
6. Invest for the future
Don’t forget to think long-term. Investing, including contributing to retirement accounts, is how you grow your wealth over time and prepare for the future.
Ask if your employer offers a 401(k), especially if they match contributions. That’s free money you don’t want to leave on the table. If a 401(k) isn’t an option, consider opening an IRA (Individual Retirement Account). Both options provide tax advantages and help grow your money through compound interest.
Not sure how much to contribute? Start small, even if it’s just 1% of your income, and increase the amount when you can. Over time, regular contributions add up.
One step at a time
Getting into good financial shape doesn’t happen overnight. But every step you take sets you up for better money management and a brighter future. Start today on your road to financial fitness and financial health.