This document discusses financial fitness and provides 20 ways for individuals to improve their financial health. Financial fitness involves having adequate savings, managing debt, planning for goals and emergencies, maintaining proper insurance coverage, and engaging in other prudent financial habits. The document recommends that people assess their financial situation using metrics like net worth, conduct a regular "financial physical," and take actionable steps to enhance areas like budgeting, savings, and investment diversification. Research indicates people can strengthen their financial fitness by adopting core practices such as having a bank account and insurance while also improving practices like goal-setting, estate planning and tracking net worth.

1. Financial Fitness: Twenty
Ways To Get In Shape
Barbara O’Neill, Ph.D., CFP®, CFCS, CPFFE
Rutgers Cooperative Extension
boneill@njaes.rutgers.edu

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A Financial “Physical” Is As
Important As Medical Physical
 Can assess problems
• High debt level
• Lack of disability insurance
• Lack of investment diversification
 Can evaluate progress toward goals
 Can help identify action steps
 Can provide motivation to change

3. 25 Financial Check-Up Metrics
http://www.cefe.illinois.edu/JCE/archives/2013_2014_vol_30/20 13-
2014_vol_30_pg13-29_ONeill.pdf
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4. Financial Wellness Metrics
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Journal of Family and
Consumer Sciences
(2002), 94(4), 53-58.

5. What is Financial Fitness?
No precise definition; it’s many things…
 Having money when you need it
 Living within your means
 Saving money regularly for emergencies and goals
 Investing to achieve long-term goals
 Having no debt or manageable debt
 Having adequate insurance for financial risks
 Preparing up-to-date legal documents 5

6. FCCLA Definition of Financial
Fitness
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The FCCLA Financial Fitness national peer education
program involves youth teaching one another how to
make, save, and spend money wisely.

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Source: Consumer Financial Protection Bureau

8. Online Financial Fitness Quizzes
 Mapping Your Future:
https://mappingyourfuture.org/money/fitnessquiz.cfm
 VA Society of CPAs:
https://www.vscpa.com/Content/59148.aspx
 Schwab:
http://www.schwabmoneywise.com/public/moneywis
e/tools_resources/fitness_quiz
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9. Rutgers Financial Fitness Quiz
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http://njaes.rutgers.edu/money/ffquiz/

10. Other Online Assessment Tools
 Personal Health and Finance Quiz:
http://njaes.rutgers.edu/money/health-finance-quiz/
 Identity Theft Risk Assessment Quiz:
http://njaes.rutgers.edu/money/identitytheft/
 Investment Risk Tolerance Quiz:
http://njaes.rutgers.edu/money/riskquiz/
 Personal Resiliency Assessment Quiz:
http://njaes.rutgers.edu/money/resiliency/
 Wise Credit Management Quiz:
http://njaes.rutgers.edu/money/wise-credit/

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Take The Financial Fitness Quiz
 20 questions about the frequency of personal
finance practices
 Scores: always (5) to never (1) or yes/no
 Scores range from 20 to 100
 Available online at
www.rce.rutgers.edu/money/ffquiz.asp
• Online version provides instant feedback

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1. Use a Checking Account
 Alternative financial services are expensive
 Shop at least three banks or credit unions (called
share draft accounts) for best interest rates and
lowest minimum deposits
 Don’t keep lots of low-rate “idle cash”
 Inquire about discounts (e.g., seniors)
 Reconcile monthly account statements

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2. Have Enough Money to Pay
Expenses
 Can income be increased?
 Can expenses be reduced or eliminated?
 Both?
 No more than 15% to 20% of net pay for
consumer debt payments
• Credit cards and student, car, and family loans
 No more than 40% to 50% of net pay for PITI or
rent and consumer debt payments

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3. Set Aside Money For Emergencies
 Three to six months of expenses is
recommended but…
• Any savings is better than no savings
 Keep first 3 months very liquid (e.g., bank)
• Next 3 months liquid (e.g., T-Bill, MMMF)
• Next 6 months somewhat liquid (e.g., CDs)
• Beyond 1 year: longer-term CDs, T-notes, short
term bond funds (some volatility), line of credit

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4. Set Written Financial Goals
 Provide incentive to save
 “Reality Test” for vague dreams
 Set a specific deadline date and cost figure
• “Save $10,000 for a new car in 5 years [year]”
 Calculate benchmark progress indicators
• “Save 2,000 per year for five years”
 Review and revise periodically

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5. Follow a Written Spending Plan
 Income = Fixed expenses (including savings) +
Flexible expenses + 1/12 of Occasional expenses
 Running balance method includes irregular expenses
(e.g., property tax, tuition, insurance premiums) and
irregular income and “extra” paychecks
 Start by tracking income and expenses
 Review and revise as needed

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6. Organize Financial Records
 K.I.S.S. principle
 Collect supplies (file folders, notebook, accordion
folder, file box or cabinet, flash drive, cloud server)
 List type and location of financial records
• Wallet (e.g., driver’s license, health ins. card, ID)
• Safe deposit box (e.g., car title, certificates, deed)
• Home (e.g., health records, wallet & SDB contents list)
 Tell executor/family members about filing system
 Don’t forget to inventory your digital assets!

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7. Know Your Marginal Tax
Bracket
 2017 federal marginal tax rates: 10%, 15%,
25%, 28%, 33%, 35%, and 39.6%
 Use tax rate to calculate after-tax return:
• Tax-equivalent yield = tax-free yield divided by
(100%- marginal tax bracket)
• Example: 4% (tax-free yield) divided by (100%
- 25%) or .75 = 4/.75 = 5.33%

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8. Calculate Your Net Worth
 Assets: everything you own
• Liquid (cash assets)
• Investment (e.g., IRAs, stocks)
• Tangible (property)
 Debts: everything you owe
• Short-term (paid off in a year or less)
• Long-term (e.g., mortgage)
 Provides a “snapshot’ of your finances:
http://njaes.rutgers.edu/money/pdfs/networthcalcworksheet.pdf

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Net Worth Statement Benefits
 Determine adequacy of emergency savings
 Determine home equity
 Analyze portfolio diversification
 See gaps in planning (e.g., no IRA)
 See total amount of debt owed
 Can use to track progress annually
 Often required for big loan approval

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9. Save/Invest Regularly For
Long-Term Financial Goals
 Mutual fund/stock automatic investment
plan (AIP)
• Example: $50 withdrawn from checking
account on 15th of month to buy shares
 Tax-deferred employer retirement plan
 Employer credit union
 Other accounts

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10. Have Three Months
Expenses Readily Accessible
 Save even more if:
• One-earner family or high expenses (6 months)
• Starting a small business (12 months)
 Avoid using a credit card for emergencies
 Shop around for highest rate of return
 Don’t let high number (e.g., 3 months x $2,000 =
$6,000) scare you: save what you can
 Replenish emergency fund as needed

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11. Increase Savings When
Salary/Earnings Increase
“Kick it up a notch” when
• You receive a raise or bonus
• You get a higher-paying job
• When a spouse enters the workforce
• When you get a new source of income (e.g.,
home-based business)
• When expenses (e.g., child care) end

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12. Establish a Personal
Retirement Savings Account
 Individual Retirement Account
• Traditional IRA
• Roth IRA
 Employer tax-deferred retirement plan
• 401(k)s- For-profit corporations
• 403(b)s- Schools and non-profit organizations
• 457 plans- State, county, and local government
• TSP- Federal government and service members
 SEPs, SIMPLEs, Keoghs for self-employment

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13. Diversify Your Investments
 More than one type of asset class (stocks,
bonds, cash, real estate, etc.)
 Different investments within each asset class
(e.g., stock in different industry sectors)
 Already diversified investments
• Mutual funds
• Exchange traded funds (ETFs)
• Unit investment trusts (UITs)

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14. Invest So After-Tax
Earnings Beat Inflation
 “Break-Even Rate of Return”
• Divide assumed inflation rate by 100 minus your
marginal tax bracket
• Example: 3 divided by 100-25 = 3/75 = 4%
 Tells return you need to “break even” after
taxes and inflation
 Try to earn 1% to 4% above break-even rate
as an average on ALL investments

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15. Purchase Adequate
Insurance For Big Unexpected
Expenses
 Purchase insurance according to “large loss
principle”
 Large potential losses include:
• Liability
• Disability
• Destruction of home
• Large medical expenses
• Loss of household earners’ income

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16. Draft a Current Will
 If no will,
• Your state decides distribution of your assets
• Higher administration expenses (e.g., bonding)
 Name an executor and guardian for minors
 Can make charitable bequests
 Make sure that will does not conflict with:
• Titling of assets
• Beneficiary designations

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17. Spend Less Than 20% of Net
Income on Consumer Debts
 Less than a 10% to 15% consumer debt-to-income
ratio is best (consumer debt ÷ take-home pay)
 Allows some “breathing room” for:
• High household expenses (e.g., child care)
• Savings
• Unexpected events (e.g., layoffs)
 High household debt makes other problems worse!
 Negotiate lower interest rates from lenders

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18. Pay Credit Card Bills in Full
 Avoids interest charges
 Avoids “perma-debt”
 Convenience users should look for a credit
card with:
• No or low annual fee
• Grace period on new purchases
• Good rewards program
 Pay bills promptly to avoid late fees and
penalty APRs

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19. Comparison Shop For
Major Purchases
 Follow “The Rule of Three”
• Check at least three competing product or
service providers
• Make an “apples to apples” comparison
 Always ask “Is this the best price/fee available?”
 Inquire about available discounts
 Time purchases for better deals

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20. Avoid Impulse Purchases
 Don’t use shopping as a form of recreation
 Wait 24 hours before making a large purchase
 Set a dollar limit (e.g., $500) to wait 24 hours
and/or check purchase with spouse
 Freeze your credit cards and wait to thaw

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Research Results
http://afcpe.org/assets/pdf/v23_j3.pdf

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Research Findings: Frequently
Performed Financial Practices
 Have a bank account to pay bills
 Have enough money each month to pay
household expenses
 Comparison shop for major purchases
 Have adequate insurance for big unexpected
expenses
• Average scores were > 4.0 (usually)

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Research Findings: Least
Frequently Performed Practices
 Have a current will (lowest score on quiz since 2002)
 Have written financial goals with a date/dollar cost
 Have a written plan (budget) for spending/saving
 Calculate net worth annually
 Have at least three months expenses set aside
 Know federal marginal income tax bracket
• Average scores were < 3.0 (sometimes)

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Final Thoughts
 Financial Fitness encompasses many areas of
personal finance
• Examples: Banking, borrowing, and budgeting
 There are many action steps that people can take to
improve their financial fitness
 Pick a few action steps that work for you
 Get help when needed
 Research indicates associations between positive
financial practices and health practices

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Comments? Questions?
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