My adult life began at the United States Military Academy at West Point. There is a physical fitness test ensuring all those entering the academy can endure the physical demands. After “Beast,” which is essentially basic training and the first summer for new cadets, we were administered our first Army Physical Fitness Test (APFT). Each branch of the military has their own version of the APFT. These tests help maintain a certain standard when it comes physical fitness in the military. So, what does this have to do with financial fitness?
The constant physical training and regular testing of fitness stuck with me well after I left the academy. As a result, I have always exercised in some form or fashion and always found a way to track my progress. This is how results are best achieved when it comes to physical fitness, and I believe it can provide great results when it comes to our financial fitness as well.
We define Financial Fitness as an ongoing process of developing and modifying life goals and determining if and how those goals can be met. So, how can we measure our financial fitness and make sure we are prepared to meet the financial demands of our current situation and goals moving forward? That’s where our Financial Fitness Basic Training comes in.
What are the components of financial fitness?
Physical fitness tests measure and test a range of different fitness components. These can include muscular strength, muscular endurance, flexibility, cardiovascular endurance, etc. In designing a similar approach to financial fitness, we first need to break it down into similar components. Below are the four primary areas with twenty-five total underlying components.
1. Lifestyle Design includes:
- Goals & Priorities
- Purposeful Work/Life Balance
- Lifestyle Projections
- Legacy Planning – Charity & Education
- Net Worth Tracking
- Cash Flow Management
- Debt & Credit Management
2. Investment Management includes:
- Risk Profiling
- Asset Allocation
- Asset Diversification
- Account Maintenance & Rebalancing
- Cost Minimization
- Disciplined Philosophy & Behavior
3. Insurance Planning includes:
- Health Insurance & HSAs
- Property, Casualty, & Liability Insurance
- Long-Term Disability
- Life Insurance
- Long-Term Care
- Employee Benefits
4. Estate & Tax Considerations include:
- Asset Location
- Tax Bracket Arbitrage
- Tax Diversification
- Last Wishes Letter
- Estate Documents
- Beneficiaries & Asset Titling
To learn about each of these components and how they fit in to your overall financial fitness, just start reading below and be sure to sign up here to receive our insights!
How do we test each component?
When we test ourselves physically, we have certain goals we want to achieve, as well as general guidelines available to us. Having the same for our finances is the purpose of our basic training series.
Financial Fitness Basic Training is designed to be a guide to help everyone achieve a solid foundation for their financial fitness. It is a nine part series, covering each of the financial fitness components, what they are, why they’re important, and how you can take some small steps towards improving each. That series begins with this session and the very first and most important of all the components.
Lifestyle Design Component #1: What are your goals and priorities?
Your goals and priorities should always be the driving force behind your financial and life decisions. Making progress towards our goals and aligning our lives with our priorities is the key to living our best, happiest lives. They give us direction and purpose.
Unfortunately, there are so many articles and talking heads yelling at us about the importance of goal setting. This has caused us to lack interest in the very act and idea of sitting down to determine what those goals are. I think going through three simple questions and formulating 3-5 overarching priorities can help us get past this reluctance. From there, our priorities should provide inspiration for any number of goals we wish to achieve. Read and answer each of the questions below, one at a time, to the best of your ability.
Question One: Imagine you are financially secure. You have enough money to take care of your needs indefinitely. How would you live your life? What would you do with the money? Would you change anything? Now, let loose and describe your best life.
Question Two: Next, imagine your doctor has just told you that you have five to ten years left to live. However, you won’t feel sick or know the exact moment of your death. What will you do with the time you have left? Will you change your life? If so, how?
Question Three: Now he tells you that you only have one day left to live. What feelings come up as you face your mortality? What do you wish you had done? Who do you wish you had become? What did you miss out on?
These questions are meant to inspire deep thought and consideration. So, what are 3-5 main themes that kept coming up? If you were honest with yourself, these should reflect your priorities in life. All of your goals, financial decisions, and life choices should be made with these priorities in mind.
This is the very beginning to a guide meant to help you build the foundation for your financial fitness. However, if you have any questions, or are interested in going ahead and going deeper, please contact us. In a couple weeks, we will discuss a purposeful work/life balance, lifestyle projections, legacy planning (charity & education) and the importance they have on your financial fitness.