7 steps to attaining financial fitness

In life, looking after one’s financial health is as important as being physically fit. (Rawpixel pic)

There is more to being fit than becoming a gym member. While physical fitness is important, so too is financial fitness.

So, what measures can you adopt to get financially fitter? Here are seven solid suggestions.

1. Backtrack before advancing. Sometimes, before moving forward it is best to look back.

Look at last year’s total income by adding up every ringgit that came in, including salary, rental income, dividend income and even that couple of hundred ringgit earned from a side business or hobby, absolutely everything.

Then work out how much was saved and/or invested. The remainder, obviously, is the amount that was spent.

Try to identify the major categories of expenses. Ballpark figures will do here, no need to work out the details down to the last sen.

2. Unveil your budget. A personal budget should be worked out sooner rather than later.

Look at last year’s expenses and their corresponding categories and try to link them to a 12-month timeline. It can be assumed, barring any major changes, that this year’s expenses will be pretty much the same.

This should be a guide as to what the monthly and annual budgeted expenses look like.

Watch out for additional or one-off expenses. If you already know what these are, note them down in the corresponding month. If it is unsure when these expenses might come up, list them separately under “anticipated expenses”.

This will serve as a reminder when considering whether or not to splurge on that latest gadget.

Shine a strong light on expenses and take action to manage them. (Rawpixel pic)

3. Lights, camera and… action! This is not an offer of a role in a Hollywood blockbuster. The light is shining on expenses, and action here refers to the actions to be taken to manage them in the next 12 months.

Write the action items down on flashcards, notecards or key them into a note-taking app on a smartphone. Refer to them regularly in order to keep the mind focused on them.

4. Trim the fat. Trim the fat by cutting down on unnecessary expenses. Think about the latte factor.

Giving up that expensive latte and substituting it with a healthier and cheaper cup of coffee made at home will save calories as well as money.

You do not always notice how a few lattes here and there can add up.

5. Give and take. Sometimes, it is a struggle to give things up. It requires discipline and willpower. And let’s face it, not everyone has either.

Try this strategy – “give up” something and “take on” something else. For example, if that expensive store-bought latte is gone, create a pleasant ritual around making a cup of coffee at home.

Make note of all your recurring bills, the billing cycles and due dates and the amounts. (Rawpixel pic)

6. Plan the work and work the plan. The truth is, just as physical fitness is not built in a day, no one wakes up one morning to find one’s financial fitness has miraculously improved.

A financial fitness plan is necessary.

First, compile all of last month’s bills. Then, hunt down quarterly bills (such as property assessment invoices, management fees and sinking fund payments for stratified properties) and annual bills (car insurance, road tax and so on).

Get a piece of paper or open a spreadsheet and make note of all the recurring bills, the billing cycles and due dates and the amounts if they are fixed.

For example, subscriptions to satellite TV services or the monthly mobile services bill). This will provide a snapshot of recurring bills.

At the beginning of each month/quarter/year, one will know which bills to expect when. This will help ensure all bills are paid on time and help budget cash in hand.

7. Use it or lose it. Let’s face it, many people do not have the time to go through all the bills in detail. The bill comes by post or the outstanding amount is checked online and payment is made, usually online as well.

People do not normally take the time to go through a bill line by line to see what is being charged.

Neither do people ensure that the price they are paying matches the service they consume. For example, telcos, broadband and TV service providers change their packages often, but one may have missed the update amid their busy life.

The result is they may still be paying for an outdated more expensive package when there are cheaper options or other service providers with more competitive pricing.

Or, payments are being made for “automated” services that are no longer needed.

The golden rule is, if it’s not being used, lose it.

Ask the service provider to explain each line item in the bill to find out what options are available and look for ways to reduce recurrent monthly expenditure on services.

Like physical fitness, financial fitness is a lifelong goal that must be worked on constantly. And, like all endeavours undertaken in life, the more it is worked at, the better people get at it and the easier it becomes.

This article first appeared in kclau.com

KC Lau’s first book Top Money Tips for Malaysians has sold thousands of copies. He launched the first online personal finance course specifically designed for Malaysians, entitled the Money Automation System. He also co-founded many other online financial courses including the Bursa Method, Property Method, Founder Method and REIT Method.