Financial fitness, what is it?

Financial fitness is a term that is appearing more and more often. But what does this term mean and when are you financially fit? We already often think of less or no debt, a higher income, a bigger buffer or a nicer car. Investopedia defines financial health as a term used to describe the state of one's personal financial situation, such as income and your savings account. But financial health, or feeling financially fit, are relative terms and the meaning is different for everyone. And that makes it complicated. Nonetheless, right now-thanks in part to inflation-it is especially important for as many people as possible to work toward living as financially healthy a life as possible. That's why Salarise figured it out for you.

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Let's get right to the point: there is no official meaning of financial fitness. Still, we can get very close. In fact, there are certain surveys and tools to see if you are financially fit.

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"A big part of financial freedom is that your heart and mind are free from worrying about the 'what ifs' of life."

The "what-ifs" of life are different for everyone. And that is also what makes it so difficult to give one definition to this concept. According to a U.S. version of Nibud, the main things that make for financial fitness are:
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• a sense of control
• the capacity to absorb a shock
• Be on track to achieve goals
• the flexibility to make choices.

Financial fitness

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The importance of financial fitness

But why is financial fitness so important? It's actually quite simple. People who are not financially fit are more likely to suffer from physical and mental problems. They live shorter lives, experience more stress and are more likely to suffer from depression. This can also go the other way. For example, illnesses can lead to debt if you lose your income due to illness. The resulting debts can have a negative effect on your health. And so you quickly spiral into complaints and problems. 

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Financially healthy behavior Nibud

You could say that financial health starts with behavior. The Nibud (The National Institute for Budget Information) has formulated four rules of thumb for financially healthy behavior. Number one is to check your balance and expenses weekly. Number two is to plan your income and expenses annually. Number three is to save ten percent of your income each month. And number four is to keep your financial records in an orderly manner. Nibud expects that people who follow these rules of thumb are less likely to have financial problems.

For more information about the rules of thumb of Nibud, click here

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The smaller the chance of financial problems, the better. After all, preparation may even be more than half the battle. You could compare it to your physical health. Here too, of course, prevention is better than cure. This becomes especially clear when we look at the financial life cycle of human beings. Here it becomes clear how many different financial situations we face in our lives on average. 

Financial life cycle

Completing your education is shown as the first financially impactful situation. Thus, a good portion of students -thanks to the loan system- already start their financial life cycle with a thick debt. Other impactful situations include changing jobs, buying a home, getting married, death in the family and so on.

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To ensure that these situations have as little impact as possible on your financial health, it is important to have a buffer. But what is a sensible amount? That varies from household to household. Fortunately, there are plenty of websites and apps that can tell you exactly how big your buffer should be. For example, take a look at the BufferBerekenaar from Nibud.