Do your New Year’s resolutions include fitness? What about financial fitness? Focusing on the health of your family’s finances to build your financial preparedness is the key to long-term success.
What Is Financial Fitness?
Financial fitness refers to your ability to manage money effectively, cover expenses, save for future goals, and prepare for unforeseen financial challenges. It encompasses financial knowledge, budgeting, debt management, and strategic savings and investments.
Why Financial Fitness Matters for Military Families
For military families, the unique demands of the military lifestyle include frequent relocations and the potential for unexpected deployments make managing financial fitness essential. By achieving your financial fitness goals, your military family will have more confidence in the ability to remain flexible, ensuring you’re prepared for future financial challenges. You’ll also reduce stress and be able to focus on your duties as a military family, improving overall quality of life and peace of mind.
8 Key Steps for Achieving Financial Fitness
Achieving financial fitness requires a proactive approach that includes setting clear goals, building a reliable budget, and managing debt effectively. The following steps will help you establish a strong financial foundation.
1. Create a Realistic
Budget Creating a realistic budget is the first step in achieving financial fitness, as it provides a clear view of income, expenses, and saving potential. By listing your monthly income sources and categorizing expenses — housing, food, transportation, and savings goals — you can identify spending patterns, prioritize needs, and set achievable financial goals.
A well-planned budget helps avoid overspending, ensures funds are available for essentials, and creates a foundation for saving, empowering families to manage their finances confidently.
2. Assess Your Risk Tolerance
Do you understand the specific level of financial risk you’re willing to accept? A risk tolerance assessment looks at your financial goals, time horizon, age, lifecycle phase, and current economic and political conditions. Using a financial risk assessment tool can help dispel any guesswork on your part by quantifying what you consider to be acceptable levels of financial risk and reward.
3. Build an Emergency Fund
An emergency fund provides a financial safety net for unexpected expenses, including medical bills, car repairs, or sudden income loss. By setting aside a portion of income each month, you can gradually accumulate three to six months' worth of living expenses, ensuring you can handle unforeseen financial challenges without employing costly solutions like borrowing money.
4. Manage and Reduce Debt
By managing, reducing, and staying out of debt, you can dedicate more of your disposable income to savings and other financial goals while minimizing the burden of interest payments that come with credit cards and loans. To help reduce your overall debt faster and improve your financial outlook, prioritize paying down high-interest debts consistently.. Implementing a strategic debt management plan will not only strengthen your credit, it will also increase your financial flexibility, paving the way for a more secure and stress-free financial future.
5. Save for Retirement
Saving for retirement ensures long-term financial security and independence in your later years. By consistently contributing to retirement accounts such as a 401(k), IRA, or TSP, you can benefit from compound growth and tax advantages, helping your savings accumulate over time. Starting early and contributing regularly allows you to build a robust retirement fund, which can provide the freedom to enjoy retirement with less financial strain.
6. Protect Your Finances with Insurance
Having insurance safeguards against significant financial setbacks that can follow unexpected events, such as accidents, property damage, illnesses, or death. Investing in adequate health, life, home, and auto insurance, mitigates the risk of substantial out-of-pocket expenses that could derail your financial plans.
7. Invest for the Future
Investing allows you to grow your wealth beyond traditional savings and prepare for major life goals, from education and homeownership to retirement. Through diversified investments in assets such as stocks, bonds, or mutual funds, you can leverage the potential for higher returns over time, harnessing the benefits of compound interest growth.
Strategic investing boosts financial resilience and helps build your legacy, supporting long-term security and wealth creation for generations of your family yet to come.
8. Regularly Review and Adjust Your Financial Plan
Staying on top of your financial plan ensures your goals, budget, and strategies stay aligned with life changes and evolving financial needs. Make a point of regularly assessing your progress, revisiting your budget, and making necessary adjustments, such as reallocating funds to higher-priority goals or adapting to new income levels. Doing so will help keep your financial plan dynamic and responsive.
AAFMAA Can Help
Financial readiness is the key to long-term success, along with protecting what you’ve earned. If you have any questions or need help planning for your financial future, we’re here to help! Contact us or call 800-522-5221 to ensure your family is prepared and protected.
This article was originally published January 18, 2023.