How Financial Fitness is Like Physical Fitness

I often analogize financial planning to dieting and exercise (as if financial planning isn’t unappealing enough already). The pain and effort comes now and the benefits come later. Both are also the subject of numerous New Year’s Eve resolutions that are cast aside by Groundhog’s Day.

So how can we get better at managing our health and wealth? It turns out that the process is very similar to both. I can speak from experience here. As a financial planner and educator, I help people struggling to manage their money. When it comes to health, I’m on the other side. After years of very inconsistent dieting and exercising, I’ve finally been making significant progress over the last few couple of months. I’ve lost over 20 lbs so far and made significant progress in my workout performance. Here are some fitness tips from an article called “6 Truths About Exercise That Nobody Wants to Believe” and how they relate to your financial fitness:

1. You need to commit for the long term.

When I set out to achieve my pre-law school fitness level, I knew it would take about 9-12 months of consistent dieting and exercising. One of the biggest mistakes people make is looking for quick results. With physical fitness, this leads to disappointment and possibly lots of money wasted on “quick fix” gadgets and miracle supplements. With financial fitness, it can cause you to jump on the hot investment that’s more likely nearing its peak. In both cases, real results come from small improvements over time so set a long term goal (retire by 55 with 75% of your income) and a plan to move towards it over time (max out your 401(k) and maintain a moderate asset allocation). Keep in mind that we tend to overestimate what we can do in the short term and underestimate what we can do in the long term.

2. You need to set a schedule for your training.

With my ever-changing schedule, I don’t have a consistent diet and workout schedule but I make it a priority to eat 5-6 small, healthy meals about every 3 hours and follow my P90X workout routine 6 days a week no matter how inconvenient it may be. With your finances, it’s about setting a budget to make sure you’re saving enough and then sticking to a disciplined investment strategy.

3. You need to focus on the best exercises.

That generally means the tough stuff: lots of rigorous cardio, free weights, calisthenics, and yoga moves rather than using fancy equipment or casually running on a treadmill while watching TV. The best “investment exercises” are simple too. Stick to a diversified portfolio of low cost stock and bond index funds rather than esoteric investment strategies or “sophisticated” financial products with high fees.

4. You need to start light and train for volume before intensity.

Before diving into P90X, I started with the much easier Power 90 and then did the intermediate Power 90 Master Series. Otherwise, you can easily get discouraged or even hurt trying to take on too much too soon. It’s the same with your finances. Start by building up an emergency fund and paying off your high interest debt before you worry too much about investing and retirement planning.

5. You need to make slow progress each week.

Your exercise goal should be to do a little better each week. That’s how your body improves. The same is true for your finances. Fortunately, the markets are doing most of the work for you but you can do your part by gradually increasing your savings rate. See if your retirement plan offers a contribution rate escalator that automatically increases your retirement plan contributions slowly over time. If not, you can simply save part of your pay raises and cost-of-living increases.

6. You need to record your workouts.

This is an important step because it lets you know what you need to do next time (see tip #5). It also allows you to see your progress and remain motivated to keep going. If you’re not making progress, it’s an indication you may need to make some changes. In the same way, chart your progress towards your financial goals, whether they be building an emergency fund to cover 3-6 months of necessary expense, paying off high-interest debt, saving for a down payment on a home, or being able to retire comfortably.  If nothing else, you’ll want to adjust your plans as things change like your goals, your personal situation, and external factors like tax laws, investment opportunities and benefits at work. Financial planning isn’t a one-time event but an ongoing process.

As you can see there are lots of similarities between physical and financial fitness. Fittingly (no pun intended), a growing number of employers are offering a combined physical and financial wellness program for their employees. Let’s hope that trend continues as both are integral components of a full life.

 

 

 

 

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