New Year's Financial Fitness - 3 Essential Exercises for a Strong Financial Year

Many people start the new year with a renewed commitment to physical fitness, flocking to gyms and fitness centers. However, statistics show that motivation often wanes, and many abandon their fitness goals within the first few months.  Similarly, maintaining financial fitness requires consistent effort and attention.

Just as a good workout routine targets key muscle groups, these three financial exercises, performed annually in January, can provide a solid foundation for your financial health throughout the year. While there are other valuable financial exercises, these three provide a comprehensive starting point for your financial fitness journey.

1. Annual Net Worth Statement

Your net worth statement is the ultimate scorecard for your financial health. It provides a snapshot of your financial strength by measuring your assets (what you own) against your liabilities (what you owe). By updating it annually, you can track your progress and stay motivated.

Personal Net Worth = Assets - Liabilities

You can create your own net worth statement using a spreadsheet program like Excel or Google Sheets, or you can find templates online from financial institutions like Schwab. 

https://www.schwabmoneywise.com/essentials/personal-net-worth

When calculating your assets, consider focusing on the change in value of your investable assets and be conservative when valuing your "use" assets like your home and car. You might also create a secondary net worth statement that excludes "use" assets, but includes any debts associated with them.

2. Credit Card Review

This exercise assumes you're paying off your credit card balances in full each month. If you're not, that should be your top priority. While experts suggest having 3-5 credit cards, the ideal number depends on your ability to manage them effectively.

Credit card companies typically send annual spending statements in January, categorizing your spending into areas like home, auto, entertainment, food, groceries, shopping, subscriptions, travel, utilities, and fees. If you don't review your statements monthly, now is the time to scrutinize them.

Look for any unrecognized charges, forgotten subscriptions, or business expenses that need to be accounted for. Analyze your spending patterns and consider whether you need to adjust your spending habits.

3. Make a Financial Date

This exercise is specifically for couples. Schedule a dinner date to discuss your finances in a relaxed and enjoyable setting. This annual financial date should be a celebration of your shared accomplishments and future dreams. Share your net worth statement, acknowledge your progress, and express gratitude for what you've built together.

While one spouse may typically handle the household finances, both partners need to be aligned on major financial matters. Openly discuss your views on saving and spending, and find a balance that respects both perspectives.

Although budgeting may not be enjoyable for everyone, it's a valuable tool for managing finances. Use your credit card information to have a respectful conversation about your spending and saving habits. Ensure your spending aligns with your values and goals, and discuss any changes you're willing to make to achieve your financial dreams.

Conclusion

By completing these three exercises, you can set yourself up for a financially fit year. Remember, financial fitness, like physical fitness, requires ongoing effort and commitment. By making these exercises a regular part of your financial routine, you can build a strong financial foundation and achieve your long-term financial goals.