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February Newsletter: What is financial fitness?

February Newsletter: What is financial fitness?

March 04, 2024

What is financial fitness?

It is not just about having a pile of money in a bank account or a fat portfolio of stocks and bonds. Lottery winners often stumble into wealth without having much in the way of financial knowledge.

A beneficiary of a large estate may know very little about financial matters. The same holds for successful college athletes who enter the world of professional sports. In other words, hitting the financial jackpot does not equate to financial fitness.

Without an understanding of the basic fundamentals of personal finance, wealth that is quickly attained can quickly disappear. Paraphrasing from Proverbs 13, wealth from get-rich-quick schemes evaporates; wealth from hard work and diligence grows over time.

We can approach this topic in many ways, but first, let’s broadly define the term financial fitness.

Financial fitness enables you to make good financial decisions because you have developed the skills and knowledge to pursue goals that will enhance your wealth and secure your financial future.

Did you put together a list of resolutions when the year began? Resolutions are broad. They might be akin to a vision statement.

Goals, however, are well defined. They are measurable. They should include an action plan, and they have a time limit.

If I resolve to be healthier in 2024, I may just say that I want to lose weight or work out more often. If I set a goal, I’ll write down the number of pounds I want to shed, a date I’d like to reach that goal, and embark on a program that will help me achieve my goal.

Better yet, I’ll enlist an accountability partner.

We are mindful that we are not personal trainers, but the same general principles that apply to goal setting in other areas of life can also help you achieve financial fitness.

Simply put, financial fitness is a crucial step towards attaining financial security and achieving your financial objectives, whether they are short-term or long-term in nature.

7 steps to a more secure financial future

  1. Set goals. If you don’t know where you are going, you won’t get there. It’s that simple.
  2. Where does your money go? You’ll never get a true handle on your finances if you don’t track your cash outlays. You know what your monthly mortgage is. But how much do you spend on restaurants, entertainment, fun, clothing, etc.? Do you budget for home and auto repairs or an upcoming vacation?

You might be surprised by what you uncover after tracking cash outlays for two or three months.

  1. You want money at the end of your month. A key principle of understanding financial fitness includes the concept that wealth accumulation isn’t a secret that has been unlocked (or can only be unlocked) by the wealthy.

Squirreling away savings involves living within our means and keeping our expenditures in check. If you find that you typically have “month at the end of your money,” you can’t save. Those who are financially fit understand this principle.

  1. Manage debt; get out of debt. Let’s come up with a strategy that eliminates high-rate credit cards and personal loans. We recognize that debt can be used judicially for purchasing a home, home improvement and autos.

But debt can also be an unwanted burden that interrupts shorter and longer-term financial goals. Paraphrasing from Proverbs 22, the borrower serves the lender.

  1. Set it and forget it. Set up automatic transfers into savings, retirement, or for various goals you may have. Get into the habit of saving today, even if the steps you initially take are small.

Upon mastering the initial five concepts, you will have the knowledge, skills, and tools necessary to increase your chances of success in achieving your financial goals.

  1. Invest, but not simply for the sake of investing. Why do you want to save money? Do you want an emergency fund, a vacation fund or a “my car is broken and needs repairs” fund? Are you saving for a home, retirement or your child or grandchild’s education?

The “why” is what drives you to overcome procrastination. It helps prevent you from drifting away from your carefully crafted plan. When obstacles arise, and they will, the “why” keeps you on the path. Without a “why,” it’s much easier to enjoy life’s pleasures today, even if it creates nagging worries about the future.

A well-diversified investment plan to which you automatically contribute every month keeps you on track toward your financial goals. Start small and adjust upward on a regular basis. You’ll be surprised at how quickly you progress.

Don’t worry too much about short-term performance and volatility. Let us help you create a plan and regularly review it, making adjustments as needed based on your goals and situation.

  1. Seek assistance. There’s no shame in reaching out when you are outside your area of expertise. Understanding and utilizing core financial principles and best practices for saving and investing are crucial for financial fitness.

Sourced in part from the CFA Institute

A positive start to the new year

The economy seems fine. The job market seems fine. So far, there are few signs the economy is about to slip into a recession.

In January, the Dow added to gains, setting new highs, and the S&P 500 Index eclipsed its prior high-water mark made two years ago (Yahoo Finance S&P 500).

A loss on the final day of the month pared the market’s January advance, but the S&P 500 managed to finish the month above its prior all-time high in early 2022.

Put another way, the stock market seems fine. So, everything is fine, right?

Well, we hit some turbulence on January 31. But down days are to be expected. Blame the decline on Fed Chief Jerome Powell, who made it clear at his press conference that a March rate cut probably isn’t in the pipeline.

But was his remark really a surprise? It shouldn’t have been. 

In part, the Fed doesn’t want to be bullied into a rate cut. In part, several Fed officials had been downplaying a March rate cut. But, when the boss speaks, people pay attention.

Besides, there aren’t yet any definitive signs that the economy is weakening. So, the Fed isn’t feeling that much pressure to hit the monetary gas pedal.

However, the Federal Reserve is openly talking about rate cuts this year. A May or June cut shouldn’t be ruled out.

For now, the economy is expanding at a modest pace, inflation is coming down, and the Fed wants to see a little bit more evidence that inflation is headed back to its 2% annual target.

Ultimately, we believe the economic fundamentals will clear a path for the market this year.

Before we wrap things up, let’s define a couple of terms: soft landing and recession. These terms pop up often in the financial press. They may be confusing for some folks; therefore, let’s spell them out.

According to Brookings, the Fed raises “interest rates just enough to slow the economy and reduce inflation without causing a recession. It has achieved what is known as a soft landing…. Soft landings are the equivalent of ‘Goldilocks’ porridge.’ Following a tightening, the economy is just right—neither too hot (inflationary) nor too cold (in a recession).”

The National Bureau of Economic Research defines a recession (a hard landing) as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” A recession is accompanied by significant job losses.

The fabled “soft landing” that allows the Fed to cut interest rates as inflation slows (and not from economic weakness) has historically provided the most support for stocks. We view this as the best-case scenario for investors.

Recessions in 1974, 1990, 2001 and 2008 led the Fed to cut rates, but recessions squashed corporate profits, and investors took their cues from weak corporate earnings, not falling interest rates.

However, equities benefited from rate cuts in 1984-85, 1995 and 2019. The monetary easing was not in response to a recession but from a recognition that rates had risen enough to slow economic growth and prevent an unwanted rise in inflation.

A slight tap on the monetary pedal was in order, and investors responded enthusiastically.

I trust you have found this review to be informative. If you have any inquiries or wish to discuss any other matters, please don’t hesitate to contact us  https://www.bdafinancial.com/schedule


The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.