Twelve Steps to a Financially Fit Household

by Mike Farley

Just as a good physical fitness program demands commitment of time and energy on a regular basis, a good financial fitness program requires the commitment of time and energy regarding the setting and reviewing of goals. Of course, the toughest part of any fitness program is determining where to start. Following are twelve initial steps toward financial fitness in the household.

1. Commitment

   Both spouses must commit to spending time regularly to review household finances.

2. Know How Money Is Spent

   Know your cash flow. What are your fixed expenses? Where are you spending your discretionary dollars? Be conscious of your purchasing habits. If you spend $3 each day on espresso, you have a $1100/year coffee habit.

3. Know Credit Card Habits

   Use your credit cards for convenience, not for financing debt. Pay off your balance monthly or those high interest rates will eat you alive. Consider getting a "Debit Card" (a card that transfers money directly out of your checking account) for the convenience of credit cards without the interest.

4. Set Financial Goals

   Develop objectives for the next six months, one year, three years and five years. Know where you are going.

5. Compare expenditures to Goals

   Evaluate, evaluate, evaluate. Be certain that your spending habits support your goals.

6. Determine Assets

   Inventory your assets. You must know where you started if you want to determine progress later.

7. Determine Liabilities

   Summarize all your liabilities, including bank debt, mortgages and credit card balances. You are not progressing if your assets and liabilities grow at the same rate. This is known as "running to stand still."

8. Review Insurance Policies

   Life, disability, health, automotive, homeowners, etc... Don't over insure or under insure. Be certain your coverages meet your financial goals and provide income for your family in an emergency.

9. List Professional Advisors

   Maintain a list of all advisors including your attorney, CPA, financial planner, insurance agent and profitability coach.

10. Review Wills

    Consider changes in family structure, financial obligations and tax law. Be certain to leave Aunt Bertha the stuffed moose head.

11. Consider a Family Retreat

    Get away from phones and interruptions by scheduling a two-day retreat to review financial goals and strategies as a family.

12. Hold Periodic Meetings

    Schedule regular meetings with all of your professional advisors to review the changes you are making.