Financial Fitness: Cultivating A Healthy Relationship With Money

In today’s world, financial fitness can significantly contribute to your overall well-being. It allows you to meet your needs to lead a comfortable life and also allows you to pursue your dreams.

However, ensuring financial fitness in emergency scenarios can be challenging. No wonder that according to a study by the ‘World Economic Forum,’ around 1 in 4 people struggle financially to maintain their standard of living and lead a comfortable life¹.

Financial struggles eventually lead to a negative spiral of debt, a shortfall in income to meet expenses, and limited opportunities, resulting in financial insecurity and stress. Thus, it is essential to move towards financially securing yourself.

This article will explore the concept of financial fitness and discuss how financial planning can positively impact your overall well-being.

What Is Financial Fitness? 

Financial Fitness refers to an individual’s ability to effectively manage financial resources and make informed decisions about their money to achieve financial goals and have financial security in life.

Just as physical fitness requires discipline and practice, financial fitness requires having a clear understanding of one's financial situation, including income, expenses, savings, investments, and debts. Moreover, doing thorough financial planning and attaining financial fitness allows you to:

• Gain control over your finances.
• Handle unexpected expenses.
• Be better prepared for the future.

Understanding The Connection Between Financial Health And Quality Of Life 

Your financial health significantly influences your overall quality of life. A study by BMC Geriatrics found that when you are financially fit, your health and life satisfaction significantly improve due to the following²:

• Stability And Reduced Stress: Financial Fitness has a direct and positive association with reduced psychological stress³. It allows you to pay your bills on time and avoid the stress of accumulating debt. Financial fitness also helps to handle unexpected but important expenses using your savings. For example, instead of worrying about dealing with sudden car repairs or medical emergencies, you can calmly rely on your savings or emergency fund to meet such expenditures. 
  This stability frees your mind to focus on your day-to-day life and goals. Thus, Financial Fitness helps you attain overall financial well-being with a  solid foundation that brings peace of mind and helps you sleep better at night.
• Freedom And Independence: Attaining financial fitness empowers you to achieve financial independence and freedom, as having enough financial resources helps you to live your life according to your aspirations without relying on others.
• Improved Health And Wellness: Having adequate finances is vital in supporting your health and well-being. It lets you access quality healthcare services and enables you to adopt preventive measures. This positively impacts your physical and mental well-being.
• Future Planning: Financial Fitness allows you to plan your future thoughtfully. You can set up trust funds and buy life insurance policies without second thoughts. Such investments will help you have a comfortable and secure retirement ahead. Additionally, a financially fit person is likelier to have a well-funded retirement plan, ensuring a comfortable post-retirement life.

Moreover, you can take advantage of the power of compounding by starting early and consistently contributing to your retirement savings.

How To Build A Healthy Relationship With Money?

Developing a healthy relationship with money is essential for achieving financial fitness. Here are some critical steps to consider while you do your financial planning:

• Assessing Your Financial Situation: Assessing your financial situation begins with clearly understanding your current financial position. Start by evaluating your income sources, including your salary and any additional sources of income. 
  Further, you must examine your expenses by listing all your monthly bills. Then, subtract your expenses from your income to determine your monthly cash flow. This thorough analysis will help you understand the sufficiency of your income to meet necessary expenses and help you manage your unnecessary expenses.
• Budgeting: Create a budget to plan your expenses and income. Allocate your income wisely, ensuring your costs align with your financial goals. Prioritise essential expenses, such as housing, utilities, and debt repayments, while setting aside savings for emergencies and future plans.
• Debt Management: Take charge of your debt by tracking the repayment plan regularly. While preparing a plan, you should first prioritise paying off debts bearing high-interest costs and consider adopting strategies such as debt consolidation, debt restructuring, etc. Moreover, you should negotiate with your creditors to lower interest rates. Furthermore, you must avoid accumulating unnecessary debt and focus on paying it off systematically, which will also help you achieve financial freedom.
• Saving: You must cultivate a habit of regular savings. It involves setting aside some of your income for future goals and meeting expenses during unforeseen events. Start with small, achievable saving targets and gradually increase them over time as your income increases. Then, consider automating your savings by setting up automatic transfers to a separate account or to short-term and low-risk savings mutual funds.
• Investing: You must educate yourself about investment opportunities that align with your risk appetite and financial goals. Understand the risks and rewards of every investment option carefully before making any investment decision. Consider diversifying your investments across different asset classes, such as mutual funds, corporate bonds, etc., and try alternative investment options. Furthermore, seek professional advice and regularly review and rebalance your investment portfolio to manage overall portfolio risk.
• Retirement Planning: Start planning for your retirement early. You can also contribute to government-facilitated retirement accounts such as the Public Provident Fund (PPF) or National Pension Scheme (NPS) to create your retirement fund. You can also use employer-sponsored retirement plans and explore other retirement savings options.

Role Of Financial Literacy 

Financial Literacy enhances your knowledge and understanding of personal finances. This can help you to manage your financial resources in the following ways: 

• It helps you understand financial products and services. This enables you to choose the ones that suit your financial needs.
• It helps you develop effective budgeting and money management skills, which leads to better control over your finances.
• It teaches you to evaluate investment opportunities and understand their potential risks and returns.
• It helps you make wise financial choices regarding credit cards, loans, and debt management.
• It allows you to plan effectively by understanding various retirement savings options.

The Bottom Line

Cultivating a healthy relationship with money and striving for financial fitness is essential, as it helps ensure your overall well-being and long-term financial security. But remember that financial fitness is a journey that requires commitment, discipline, and adaptability. So, start your financial planning today and build a better future for yourself.

Here is a quick tip: If you are looking for investment opportunities that align with your financial goals, consider exploring Grip. It is a digital investment platform that focuses on wealth creation for investors through alternative investment instruments. 

References:

1. World Economic Forum  <https://tinyurl.com/e9dhpk6d>  
2. BMC Geriatrics  <https://tinyurl.com/3d5c6y8w>
3. National Center for Biotechnology Information  <https://tinyurl.com/2s3am22a>

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