Most of us know it is smart to save money for those big-ticket items we really want to buy, a new TV, a car, how about a house? You may not realize that probably the most expensive thing you’ll ever buy in your lifetime is your retirement. Maybe you’ve never thought of buying your retirement, yet that is exactly what you do when you put money into a retirement account. You are paying today for the cost of your retirement plan tomorrow.

The cost of those future years is getting more expensive for most Americans, for two reasons. First we live longer after we retire, with many of us spending fifteen, twenty five, or even thirty years in retirement. Second, you may have to shoulder a great chunk of the cost of your retirement because fewer companies today are providing traditional pension plans. Many retirement plans today, such as a 401(k) are paid for primarily by the employee, not the employer, which puts the responsibility of choosing retirement investments squarely on your shoulders.

So today, I’m going to talk to you about how to develop a financial fitness program, so you can whip those finances into shape.

Unfortunately, not all workers have a retirement plan at work, and many of the ones who do, don’t understand even the basics of investing. Many people mistakenly believe that Social Security will pay for all or most of their retirement needs. The fact is, Social Security provides a minimum foundation of protection. A comfortable retirement usually requires a blend of Social Security, retirement plan benefits, and personal savings. In short, paying for the retirement you truly desire is ultimately your responsibility.

That may sound like an impossible task because many of us live paycheck to paycheck barely making ends meet. You may have more pressing financial needs today, so thinking about something so far in the future seems daunting. Maybe you’ve waited until close to retirement before starting to save and feel like you’re behind. Well I’ve got good news, whether you are eighteen or fifty-eight, you can take steps toward a better more secure future.

So let’s talk about getting financially fit and managing your financial life. And it all starts with the dream, the dream of a secure retirement. Like many people you may wonder how you can achieve that dream with so many other financial issues that have priority. Besides trying to pay for everyday expenses, you may need to buy new car, or pay off debts, or save for education. You may have aging parents to support. How do you manage all of these financial challenges and at the same time try to save for retirement? How do you turn your dreams into reality?

You start by writing down each of your goals. Don’t be worried about leaving something out at this stage because you don’t think you can afford it, this is your wish list and this is the time to dream. Next, organize these goals into different blocks of years. List some of your goals that you want to accomplish within the next five years or less, and then other goals within five to ten years, and then ten years or more. It’s important to separate them because as I’ll discuss later, you save for short-term and long-term goals differently.

Now, organize your goals in order of priority. And make retirement a priority! This needs to be among your goals regardless of your age. Some goals you may be able to borrow for, such as college, or a car, but you can’t borrow for retirement. Next write down what you need to do to accomplish the goal, what will it cost, what money have you set aside already, and what are you willing to do to reach the goal.

Now let’s look at your current financial resources. You need to calculate your net worth, which isn’t as difficult as it might sound. Your net worth is simply the total value of what you own minus what you owe. It’s a snapshot of your financial health. You should review your net worth annually, and recalculate your net worth once a year. It’s a good way to monitor your financial health.

Now try to envision your retirement. Retirement is a state of mind as well as a financial issue. You’re not so much retiring from work as you are moving into another stage of your life. Some people call retirement a new career. What do you want to do in that stage? Travel? Relax? Be near grandchildren? Pursue your favorite hobbies? Go fishing or join a country club? Work part time or do volunteer work? How about going back to school or learning something new? The answers to these questions are crucial when determining how much money you will need for the retirement you desire and how much you’ll need to save between now and then.

The next thing everyone should have is a budget. Or as I like to call it a spending plan. Spending plans are simple to set up and you really only have two categories, income and expenses. Add up all your monthly income, then add up all your monthly expenses don’t be surprised if your expenses are more than your income, it may be time to cut some stuff out so you can save more.

Now, where should you put your savings? If it’s a short term goal, like a family vacation, or maybe the down payment for a house, those things that are one year or less, it might be best to put your money into one or more bank accounts or CDs. You won’t earn very much interest but the money will be safe, and there when you need it.

For goals that are least five years or more, like retirement, you may want to put some of that money into higher risk investments like stocks, bonds, real estate, or other assets. Unlike savings accounts or bank CDs, these types of investments typically are not insured by the federal government and there is risk that you can lose some of your money. How much risk, depends on the type of investment. Generally, the longer you have until retirement, the more risk you can afford to take. The closer you get to retiring, the less risk you want to take.

But why take any risk at all? Because the greater the risk, the greater the potential reward. By investing in things like stocks and bonds you’re more likely to earn significantly more money, and keep ahead of inflation, than by keeping all of your savings in the bank for example.

Financial fitness is a workout worth doing. But financial planning is not a one-time process. Life, your goals, tax laws, and the financial world in general have a way of changing, sometimes dramatically. So here are five things you can do to stay on track,

  • Periodically review your spending plan.
  • Monitor the performance of investments and make adjustments if necessary.
  • Make sure you contribute more toward your retirement as you earn more.
  • Update your various insurance safety nets to reflect changes in income or personal circumstances.
  • And always keep your finances in order.

Hopefully you now realize that saving for your own retirement is critical and that it is primarily your responsibility. No one will work harder or care more about your retirement and your other financial goals than you will. That being said you may want to consider professional resources as well, such as the help of a financial advisor a tax person. These professionals and experts can help answer your financial questions and more importantly, help motivate you into action and help you stick to your program.

Finally there’s only one real key to buying the retirement you always dreamed of. It doesn’t matter whether you are still young or whether retirement is just around the corner. It doesn’t matter whether you’re in your first job, trying to save for a home, or putting a child to college. All that matters is that you start saving… Now. You can do it!