by Jonathan riggs

Six steps to financial fitness this new year

It takes discipline to get—and stay—fit. That doesn’t just go for physical fitness, but also for financial fitness. When you’re making resolutions to tone and tighten up your body, you should also consider applying the same discipline to your budget. It doesn’t do any good to be hot and broke, so why not get in great shape all over?

For help, we went to Tom Engell, a CPA with Leslie, Wallace & Associates, for a master class on whipping your wallet into shape.

“The start of a new year is a great time to reassess your financial fitness. Taking control of your finances is not about being wealthy—it’s about making sound choices,” Engell says. “Just like physical fitness, financial fitness won’t come to you if you wait for it. It’s a habit for life, and it’s never too late to start. It can be as simple as knowing where you want to be financially, then working through the steps to get there.” Listed below are Engell’s six steps for financial fitness.

1. RUN THE TRACK

“The place to start is to track every expense for a month. During that same period, write down all of your income,” Engell says. “The process itself is time-consuming, but not difficult. At the end of the month, compare the two lists, see where the gaps are, and adjust accordingly.”

Extra Tip: “Include every expense, even snacks from vending machines and change put in parking meters.”

2. PUSH DOWN

“Organize a list of your debts by highest interest rate. Apply the ‘Push Down’ strategy to the debt on the top of the list. All available cash is used to pay down the debt with the highest interest rate, first. When the first debt is paid off, use the cash that is freed up to pay down the next debt on the list.”

Extra Tip: “Be on the lookout for new ways to cut costs and bring in more money. The sooner a debt gets paid off, the sooner you can push hard at the next one on the list.”

3. GET CUT

“A two-minute phone call could save you money. Call your credit card company and ask them to cut your interest rate.”

Extra Tip: “Remember, there's no incentive for them to lower your rate unless you call. Persistence will pay off.”

4. STAY HYDRATED

“Establishing an emergency savings account is vital. The purpose of the fund is to sock away six months’ living expenses. But this money could also be used when you’re staring at major, unplanned expenses such as a car breakdown or a broken appliance. What’s important is that you put the money away consistently, and then tap it only for true emergencies. The success of any long-range savings plan depends less on the rate of return than on consistently putting money away—and leaving it there!”

Extra Tip: “As you’re growing your emergency fund, consider keeping it in a money market account to earn interest while it is building.”

5. TRIM DOWN

“You’ve no doubt started receiving your W-2s and 1099s and have begun to think about filing your taxes. One of the best last-minute strategies to save on taxes is to contribute money to an IRA. If you don’t need to trim your tax bill, or if you are not eligible for a traditional IRA, then consider making a contribution to a Roth IRA. Unlike a traditional IRA, a Roth IRA is not tax-deductible. Instead, your savings grow, tax-free, until you withdraw the funds. Your withdrawal will be tax-free, as well, if you follow the rules for withdrawing money from your Roth. The tax-free aspects of the Roth IRA can translate into serious tax savings for long-term investors.”

Extra Tip: “Contributions to a traditional or Roth IRA must happen by April 15, 2008, for the 2007 tax year.”

6. MIND OVER MATTER!

“Stay motivated. Sticking to good financial habits, especially if you’ve been financially unfit for a while, can be a challenge … but you can do it!”