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Financial Fitness: Different Plans for Different People

Wednesday, 7 Jan 2009 | 2:13 PM ET

Take five guys who need to get into shape, all weighing exactly the same. Send them to the doctor and a trainer to gather together their health data before they start a fitness plan—BMI, strength testing, stress hormone levels, bad cholesterol, good cholesterol, etc. Same weight, five very different fitness plans. This is why it is so important to know your own numbers when it comes to becoming financially fit. What are your interest rates on any and all debts (mortgage, credit cards, student loans, etc.)? What are you earning on your savings and where is every dollar of your retirement money? It’s about more than how much you’ve got—the dollar amounts—like your weight. It’s about the numbers behind the ‘weight’ that reveal what work needs to be done first to get fit.

Last night we met Ron, a former professional football player, now a graduate student and single dad who does incredibly important work with kids in trouble. His new career is tremendously rewarding, but unfortunately, not as financially rewarding as his former career.

The great news for Ron going from making $300,000 a year to making around $45,000 is that he lives within his means, but because he needs to plan for retirement and build savings for himself and his son, he needs to live a bit below his means.

Also important to his ‘Fin-Fit Plan’ is to know the interest rates on his debts. Ron doesn’t have any credit card debt but a small personal loan and a student loan. If Ron’s student loan interest rate had been at or above 6 or 7%, there’d be more urgency for him to focus his financial fitness plan on paying them off. However, Ron revealed that his rates are lower than that so I adjusted his fitness plan accordingly.

Low-interest student loan debt is a good thing to have if you have a degree to show for it. It’s

an investment in you and your future—it returns you in future earnings and wealth. Ron doesn’t need to pay more than his regular monthly payments to his student loans. Instead, he can focus his fitness plan on building an emergency savings account. Emergency savings build up financial immunity. Savings protect you from financial setbacks and allow you to recover more quickly, and ahead. Ron’s on the right track.

What are your numbers?