How to Become Fiscally Fit

Fiscal fitness is vital at any time, but especially during periods of sluggish economic growth and inflation. It requires willpower and discipline, but as long as you are generating a revenue stream, you can improve your financial health.

Difficulty: Challenging

Instructions

1. Determine how much you are worth. Total your assets. If you are a homeowner, list the current value for your home. If you're not sure, ask your local real estate agent for an estimate. Add the value of your individual retirement accounts, savings and pension plans. Add any valuable or items that can be converted into cash, such as jewelry, furniture or artwork. Subtract the amount of your debts.

2. Budget. Tally up your expenses and income. If you notice a lot of cash disappearing into a miscellaneous category, then start to pay by debit card until you get a better picture of where your money is going. Look at your budget with a critical eye. If you start each work day with a Grande Latte from Starbucks, that could easily cost $1200 a year. Pay off any high-interest credit card debts.

3. Save from every paycheck. Set a fixed percentage from the gross and pay yourself first. Start a cash reserve. Establish a cushion that would cover your bills and living expenses for three months in a a liquid account, such as FDIC-insured savings account. Invest another three-month cushion in a 90-day Certificate of Deposit, that you can draw on after using the first cushion.

4. Salt away as much money as you can in retirement accounts, including the annual maximum in your Individual Retirement Account. Roth IRA contributions are not tax deductible, but you are allowed to withdraw money from it before age 59 1/2 without incurring the 10% early withdrawal penalty (up to $10,000) if you're investing the money in a first home. In choosing your mix of IRA investments, turn to your financial adviser. A good part of your mix should be a no-load Standard and Poor’s 500 Mutual Funds, such as the one Vanguard offers.

5. Establish an investment strategy. This could include owning your own home, buying commercial real estate or investing in stocks or bonds. Hire experts. Don't try to figure out all of this on your own. Work with an investment counselor and an accountant to compose a comprehensive financial plan beyond the basics.