Getting your finances into good shape can be just as important as looking after your physical and mental health. You’ll have to put some time in but if you make a plan and stick to it, you could find that things are looking better a lot quicker than you expected.

Here are seven basic steps for improving your financial fitness:

1. Make a budget, have a plan

Managing your spending is a great first step in your financial workout. To improve your financial fitness in this stage you need to make a budget. Three months of bank statements will give you a good picture of what goes in and out of your account. Try to be as detailed and realistic as you can, so don’t assume you’ll stop doing the things you enjoy or start living in a world without treats.

2. Make debt work for you

Debt can be useful. It’s hard to buy a house without it, for a start. But use it for things that you can afford rather than going into debt unnecessarily. Look at the budget you created in step one, this will give you knowledge and understanding of the level of debt that you can comfortably manage.

Paying for a holiday with a credit card, for example, is great, but only if you know you can pay off the balance. Some people find that they’re still paying for last year’s holiday on their credit card when they book the next one – and that’s not a great position to be in.

Checking your credit score is useful and valuable too. It affects how much you can borrow and what you pay in interest, so it’s worth keeping it in good shape.

3. Save for a rainy day

No matter how careful you are, it’s impossible to plan for everything when it comes to your finances. Your car could fail its MOT. Your lawnmower might break down. Or, at the other end of the scale, you could lose your job. The first two examples might cost you more than you can afford if you just pay for everything from your monthly income. And with the last example, you’ll need money put aside to live on whilst you search for a new job.

It’s easier to deal with these financial setbacks if you have a contingency savings pot. You should aim to put aside an equivalent of a month’s salary for unexpected one-off expenses.

Then, try to build up a further three months’ salary equivalent in savings for larger expenses, such as a period of unemployment. This won’t happen straight away, but £50 a month adds up to £600 in a year, with any interest you earn added on top.

4. Invest to make your money grow

When your savings are in a good place and you have knowledge and understanding of your budget, you could start to think about investing. You’re already doing this through your workplace pension, of course, but you can also build up your own investments. This does involve more risk and your investments can fall in value as well as rise, so you may get back less than you invest. Just make sure you’re willing to put the money away for at least five years, as this may allow you to ‘ride out’ any downturns and benefit from the markets’ potential for long-term growth.

5. Make the most of your workplace pension

Being a member of your company’s pension scheme is a good place to start, but it doesn’t mean your retirement is taken care of. Your workplace pension is your savings for your retirement, so you need to give it some thought every now and again. Start by checking your account, see how much your account is worth and explore where it’s invested. Then you can think about what an increase in your contributions could mean longer term. Take our 1% challenge to see how a small change can make a big difference.

6. Protect what’s important

We know that making a Will is often as task that is overlooked but it’s important to know that if the worst were to happen, the courts will be the ones to decide how to distribute your assets.  So, in order to ensure that your loved ones get what’s yours when you die, you must have a Will in place that clearly states your wishes. Otherwise many people, who you might want to leave something to, could be left out.

Your pension account isn’t covered by a Will, so make sure you fill in an expression of wish form (and keep it up-to-date). You may also want to think about health and life insurance, and income protection so you can protect your lifestyle and loved ones if the unexpected happens. Check the offers you receive through your employer, you may have discounts already set up.

7. Make sure your finances stay in shape

Finally, make sure that you stay on track and that your progress is positive, and you feel good about your financial health. Every six months or so, take some time to check your progress, monitor your financial fitness levels and adjust your plans if need be.

Important Information

The value of investments can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. Withdrawals from a pension product will not normally be possible until you reach age 55.