What's your Financial Fitness level?

Personal finance is similar in many ways to pursuing physical fitness. Just as one works on their physical health to live a long and fulfilling life, it’s essential to build up our financial muscles through practice. The road to wealth and abundance is not a short one — it is a long journey that’s made through small and consistent steps: showing up, remaining disciplined, and growing through incremental successes and failures along the way.

Nearly everyone can relate to the fitness metaphor. At some point, we’ve all let ourselves go a bit too far. A weekend of bars and restaurants, dinner with friends and family, a date night with your significant other — life happens and before you know it, all of our good intentions and planning for a healthy lifestyle get derailed. The problem becomes chronic once it turns habitual. One weekend rolls into a month, and then two, and then half the year is gone and we feel tired, unmotivated, and unable to fathom how quickly our fitness has fallen off. Maybe we were active back in the day and could get away with poor nutrition and lifestyle. But over time, those bad habits come back to haunt us.

Consider this: it takes time to lose our strength, stamina, and endurance. If they’re not trained, our muscles atrophy, we become weaker, and life (through the lens of our physical fitness) gets harder because of it. But is it not also hard to stick to a training routine, adopt nutritious eating habits, and stay focused on the long-game of living a healthy life? In the wise words of Westley from The Princess Bride: “Life is pain, Highness. Anyone who says differently is selling something.”

Here’s the good news: life may be hard and painful, but we get to choose our hard. Being unfit and unhealthy is hard. Getting fit and healthy is hard. Pick one.

Similarly, with personal finance: being broke and living paycheck-to-paycheck is hard. Acquiring the knowledge and taking action to live a financially secure and stable life is hard. Pick your hard.

Much like embarking on a fitness journey, financial fitness begins with setting clear and achievable goals. Just like an athlete sets goals for weight loss, muscle growth, or endurance, individuals should define financial objectives. These goals could include saving for a home, funding education, or building an emergency fund. Establishing certain financial milestones helps to provide direction and motivation, a why for doing the things we do. In order to determine where we stand on a financial fitness scale, its best to have some benchmarks to compare our current progress towards. Here’s a breakdown of where the certain groups sit from their 20s-40s:

Turbulent Twenties

Getting behaviors right in our twenties is the foundation for being able to generate wealth effectively in our later years. That means staying away from (or getting out of) debt, building the habit of investing consistently, and putting in the time to learn personal finance. Because many 20-somethings are saddled with student loans and are just beginning their careers, the median net worth is only $7,940. To be in the top 25% of 20 year olds, you’d need a net worth of $50,820. The top 10%: $132,140. Many Americans in their 20s have a negative net worth, but don’t be discouraged. There is still plenty of time to build wealth so long as the habits are trained. For our readers, the goal should be to aim to be outliers — having a net worth of $50-$132k is a laudable achievement and something worthy of pursuing.

Thriving Thirties

Once we hit our 30s, this is where the basic training and exercising of our financial muscles start to shine. If you can tune out the noise of what your friends, neighbors, etc. are doing and prevent lifestyle creep from taking over, you can set yourself up for a very secure retirement. This isn’t full-exertion and backbreaking training — if anything, it is the stability of a consistent routine that’s now being dialed in from our 20s. Invest in 401ks, Roth IRAs, take the employer match. The median net worth for someone in their 30s is $43,900. To be in the top 25% of Americans, you’ll need a net worth of $165,600 — something achievable in the span of 10-20 years performing the basic habits of saving and investing. To take the spot in the top 10% requires more nuance and detail: strategic investment planning, living below your means more so than is typical, and generally owning your own primary residence.

Fearless Forties

For many in the FI/RE community, this is where retirement from traditional means of employment begins. For others, it can be another decade to grow their nest egg. The average American has a median net worth of $143,990 — just below that of the top 25% of individuals in their 30s. Notice the discrepancy in the upper tiers: the top 25% and 10% of Americans have allowed their gains from the previous decade to compound and grow; their net worth is multiples of the average 40 year old. The 40s are a place where many can take a fork in the road, so to speak: continue plodding forward, or ease up on the gas. Combined with setting a financial independence number, the choice is left up to the individual on how they want the rest of their life to look.

Conclusion

By establishing baselines on where the average individual exists in terms of a financial fitness scale, we can use that knowledge to rate ourselves honestly on our own personal finances. Are we a bit behind? Now, we’ve acknowledged the problem and can attempt to figure out a solution. Are we in the middle? How can we improve and step up a tier? Just like physical fitness, we track our progress over time and make improvements. With slight changes to our routine, it becomes entirely possible to achieve a financial physique we can be proud of.

What’s your financial fitness level? And how can you improve it?