What is ‘financial housekeeping’? Well, it is essentially the process of keeping your finances in good order through regular attention and maintenance. A quick dusting down of your budget each week or shining up your savings with better planning and research can make all the difference to overall financial health.

Financial health, like physical health, can be achieved through a fitness process. Achieving financial fitness requires discipline and determination over the long term, just like running a marathon. Financial fitness means feeling good and confident about your financial situation. It means being able to manage your money in order to meet your current long-term needs.

As with any type of training, becoming financially fit requires learning the principles and best practices that others have used to achieve their financial objective.

To begin your training toward a more secure financial future, follow these eight proposed steps to your financial fitness.

Set financial goals
You cannot reach any goals if you do not set them. Planning how to use savings and investments to reach your financial goals is key. Determine how much you need to save over time to finance your dreams and include an emergency fund in your goals.

Understand where your money is going
Create a budget that includes necessities, required expenditures, discretionary items, and the periodic savings necessary to finance long-term financial goals. Track your spending and compare it regularly against your budget and make changes to your spending habits where necessary. Use the knowledge and skills you gain over time to spend less where possible and save more.

Manage your debt
Curtailing the use of debt for consumption is crucial when trying to optimise savings and investment capital. Avoid high-interest rates and potential fees by minimising the use of credit cards. Build a debt-management strategy to reduce and eliminate high-interest debt and to accelerate the payment of debts like student loans and your mortgage if they are priority.

Put your finances on autopilot
Put money in your savings account using direct deposit so that you do not spend it. Make sure regular contributions make it into retirement and other investing accounts. Use autopay to manage and pay recurring bills like mortgage or student loan payments. Use a money-management application to help track payments and other expenditures.

Maintain steady lifestyle
Spending does not have to grow at the same rate as income. Growth in income, bonuses and other windfalls can increase savings and investment accounts. Keeping expenditures relatively constant over time is a key method in achieving a secure financial future.

Invest wisely
Establish a low-cost, globally diversified portfolio that is appropriate to achieve both short- and long-term goals, use a broadly diversified portfolio of global stocks and bonds to obtain a proper return in regards to your attitude about, ability to take, financial risk. Where appropriate, think long term and do not be overly focussed on the short-term performance of your investments. Stick to your investment plan and review your portfolio periodically to stay on track.

Obtain knowledge and advice
Being financially fit means understanding and utilising the main principles and best practices in saving and investing. When needed, get help from accredited investment adviser that can help you build an investment plan and portfolio to meet your financial needs.

Start now
Procrastination is the thief of time. Like any type of training, taking the steps to financial fitness isn’t easy but the benefits are boundless. These skills apply to anyone, regardless of age, orientation, or net worth. It takes time, energy and discipline to obtain and polish the necessary skills.
The best approach is to start now!

This article was written by the CFA Society Cayman Board.
Source: CFA Institute Research Foundation (www.cfainstitute.org)

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