Train Your Way to Financial Fitness

Shannon McLay

• Publisher: River Grove Books
• Year: 2014
• eBook ISBN: 9781938416965
• Topic: Business
• Subtopic: Leadership
• Index: Business

After accomplishing her own successful weight loss journey, financial planner Shannon McLay realized that while there are a number of resources available to people who want to become physically fit, there are far fewer for those looking to become financially fit. Many personal finance books tend to put the cart before the horse when it comes to financial planning, prompting McLay to ask, “How can you discuss retirement or investment options, when you don’t have any money to begin with?" Most people don’t even know what financial fitness looks like, let alone how to achieve it. We can measure and weigh ourselves to quantify physical health, but how do we evaluate our financial health? McLay, an advisor who works with individuals everyday on their financial health, has created an innovative quiz to help you learn whether you’re “financially skinny, ” financially fat, ” or “financially fit.” From there, she provides exercises and advice to help you achieve, or sustain, a financially fit lifestyle. As with physical health and fitness, financial fitness is a goal that anyone can achieve. The journey is very similar: you need a plan and the right tools to accomplish your goals. This book will give you the resources you need along your journey to financial fitness, all you have to do is follow it just like any other training.

CHAPTER 1

What Is Financial Fitness?

 

In my opinion, next to physical fitness, financial fitness is the number-one key to success in life. I can even argue that it is more important than physical fitness, because poor financial health oft en leads to the poor physical health associated with stress, high blood pressure, poor nutrition, and so forth. And it is amazing to me that we spend so little time focused on trying to achieve financial fitness. Americans spend millions of dollars a year on gym memberships, diet and weight-loss programs, vitamins, and organic food—all to achieve physical fitness. Yet how many of us say we don’t have the time or money to devote to financial fitness?

So what do I mean when I say financial fitness? Simply put, it is the state of financial health where you are capable of achieving your financial hopes and dreams. Just as each of us is unique in our life goals, financial fitness does not look and feel the same for everyone. It does not necessarily mean having $1 million in your bank account, having the ability to retire at forty-five, or vacationing at Four Seasons. It could mean those things if you personally desire them, but more generally, financial fitness is the state where you can live the life you want to live and feel comfortable doing it. We frequently get so caught up in what we don’t have or what we are not doing that it is difficult for us to understand what type of life we have the means of living.

When I meet with clients and we discuss their life goals and the journey they want to take, part of the meeting involves understanding what the clients want; the other part is explaining to them what they are capable of achieving. A balance between the two does not always exist. If you make $50,000 a year and you are barely able to save any money, then you will likely not be vacationing at Four Seasons. At the same time, if you make $1 million a year and you are barely able to save money, then you too should not be vacationing at Four Seasons, no matter how much you think you should.

When I go through the planning process with clients, I typically have the Rolling Stones song “You Can’t Always Get What You Want” queued up on my iPod. There is no truer statement when it comes to financial fitness. The first step in attaining it is understanding that you can’t always get what you want—meaning that you cannot spend money on your every desire. But that doesn’t necessarily mean that you can’t have a great life. In fact, when you learn this lesson and plan for financial fitness, you will be happier in the long run.

There are three financial fitness types: Fit, Skinny, and Fat. I will go into more detail on each of these types within their unique sections; however, I will provide you a quick overview here. Just as we should all strive to become physically fit, I believe that we should all strive to become Financially Fit. When you are Financially Fit, you live within your means and plan well for your financial goals. Financially Skinny persons live paycheck to paycheck and feel as though they cannot get ahead, no matter how hard they work. And a Financially Fat person typically overspends and under-saves; this person usually has large amounts of debt relative to earnings.

Before we determine which type you are, let’s take the first step to defining what financial success looks like to you … which leads us to the first exercise in this book. I encourage you to take the time and thoughtfully perform each exercise. I do these exercises with my clients, and they find them a valuable use of their time.

LIFE’S JOURNEY

When I first meet with clients, I tell them, “Your adult life is like a road trip from New York to California. New York is where you are when you are just starting out, and California is retirement.” I view my role as helping them get there:

 

1. in the time they want to get there;
2. living in the house they want to live in when they get there; and
3. making all of the stops they want to make along the way.

I meet people in all stages of their road trips. Sometimes people are further along in their paths, say in Ohio or Colorado. One of my clients said she felt she was in Maine, because $200,000 in student loan debt had set her back in life. It is not necessarily critical for you to figure out what state you are in. What is more critical at this point is determining what your road trip looks like.

VISUALIZING YOUR JOURNEY

Take five to ten minutes to sit quietly. Close your eyes. Take a few deep breaths and think about what you want out of life. Take a pen and paper and answer as many of these questions as possible.

What is important to you?

 

1. Do you want to have a career?
2. Do you want to get married?
3. Do you want to have children?
4. Do you want to be a stay-at-home mom or dad?
5. Do you want to retire by a certain age?
6. Do you want to get a college degree or an additional degree?
7. Do you want to buy a house?

What are bucket list items that you absolutely have to do before you die?

 

1. Do you want to travel internationally?
2. Do you want to skydive?
3. Do you want to give to charity?
4. Do you want to go skiing/hiking/mountain climbing/surfing?

What are everyday things that you feel you need to be happy?

 

1. Do you like to eat out?
2. Do you like lattés five times a week or more?
3. Do you like to go out with friends multiple times a week?
4. Do you like to go shopping multiple times a month?

The first two lists should be considered your “needs” in life; these are the items that you prioritize when planning.

The third list involves the “wants” you have in life. It is not as critical as the first two, but it would be nice to have these things if you could.

Now look through the lists that you created. Are they long? Short? Looking at the lists, consider the monetary value that each item has. Do you know the value of the items on your list? If not, I highly encourage you to try to determine the value of your wants and needs. This may seem tedious, but it is important to understand the cost of your life’s goals. It is especially critical to understand the financial value of your bucket list and absolute need list. There are many resources you could utilize to determine the values on your list. For many of the items, www.census.gov has a number of details regarding home costs and potential earnings, and www.ed.gov has great details on educational costs in the US. So if one of your dreams is to purchase a home in Illinois, you would see that the median home price there is $190,000, and if you need 20 percent of the home price as a down payment, then you would need at least $38,000 in cash to achieve this goal in your life.

For more specific goals, I advise clients to research the goal and determine average costs. For example, if you searched “skydiving costs” you would find that the average cost is about $349. So, if skydiving is an important goal for you, you would know that you need to plan for at least $349 to accomplish it.

Now that you have an idea of the value of the wants and needs in your life’s journey, it is time to determine whether they are attainable based on what your financial resources are or might be. If you are not able to afford some of these things now, could you afford them later?

Going back to the analogy of the road trip, if you are about to embark on a 3,000-mile trip, won’t you save time, money, and energy by using a map or GPS? This first exercise is important in order to understand the stops along the way that you want to make. Now that you have the stops in sight, we can incorporate them into the route. You might be surprised to learn how many of your goals are possible, once you have a plan in place.

Frequently I meet clients who have never gone through this exercise. When we do this together, they realize that they have wasted time and money on nonessential items, which has prevented them from making the stops they truly want to make; now we have to work harder to make those stops a reality for them. It is like driving for days, reaching Indiana, and then realizing you wanted to see Vermont. So now we have to backtrack. Wouldn’t it have made more sense to see Vermont first?

My clients and I go through this exercise together at least annually. It is important to keep your goals in sight but also to recognize that this list will likely change over time. Life is a long journey, so changes are inevitable. Some changes will be in your control, and others will not. In addition, some plans are near-term, while others may be longer-term.

It is important to acknowledge the near-term events as they approach and focus on those where appropriate. As an example, I have forty-five-year-old clients who have retirement aspirations and education goals for their children. These are their long-term plans. However, they would also like to make an addition to their home in the next two years, which is a short-term goal. Therefore, we are keeping retirement and education constantly in sight while creating a specific plan for the house that will allow them to build the addition within two years without sacrificing those other things.

People who work toward financial fitness are capable of achieving most items on their list. They understand that this yearly list represents what they hope to achieve, and they work to make it a reality. Without the list, how do you know what is important to you? How do you understand the costs? The list is critical to living a Financially Fit life. Again, when you are Financially Fit, achieving the goals on your list will become a reality. Doesn’t that sound fun? Don’t you want that to be you? Then let’s get started!

CHAPTER 2

Financial Fitness Quiz

As I mentioned earlier, we are all unique people with varied goals and values in life. We have all taken different paths that have led us to become the people that we are at this point. While there are many overall personality ty...

Table of contents

• Cover Page
• Title
• Copyright
• Dedication
• Contents
• Introduction: My Financial Fitness Journey
• 1 What is Financial Fitness?
• 2 Financial Fitness Quiz
• 3 Financially Fit
• 4 Financially Skinny
• 5 Financially Fat
• 6 What Every Financial Type Needs For Success
• Appendix: Exercises for Every Fitness Type
• Acknowledgments