Editorial Team

No Pain, No Gain — Comparing Physical and Financial Fitness

How you think about your physical health and fitness can tell a lot about how you think about financial fitness. This makes sense as in a lot of ways they are similar, but importantly there are also ways in which they differ and this can make getting financial fit a lot easier to achieve and maintain than being physically fit.

We first explore how these two areas are the same — but also how they are different and how to use that to your own advantage.

(1) No quick fix small actions multiply over time — going to the gym and having a really hard workout once a year is not going to help you. You need to build up slowly and then maintain a constant level of high-frequency activity.

Same is true of financial fitness — dropping that annual bonus into a high-interest savings account will mean your money dies a slow painful decline as inflation erodes its value. Put it into the stock market and you run the risk of market timing — buying at a peak. We advocate for a balanced approach and drip-feeding funds into a highly diversified low-cost fund managing timing risk but maximising the potential for compound growth.

(2) You need to have a holistic approach — if you eat poorly but go to the gym and work out every day your health will suffer and you will struggle to reach optimal fitness levels. There is a dynamic relationship between all the things you do to your mind and your body.

Similarly in finance, if you are spending more than you earn, or have poorly managed debt or waste money on “premium” credit card fees and leave money in a no/low-interest accounts you are creating unnecessary drag to your goal of financial fitness.

(3) Focus on the outcome — you need to be highly motivated and resilient, running in the rain or snow, working out when you don’t feel it, lack of obvious incremental improvement and unrealistic fake lifestyles on Instagram all need to be overcome.

Looking at Rich Kids of Instagram and self-proclaimed financial, lifestyle and travel gurus “travel the world on points!” does not provide the right sort of encouragement. Sticking to the long boring path to get rich slowly is not sexy but it is highly effective. It’s really hard to focus on the long term goal and it takes decades to achieve but it’s worth it.

(4) Diversify your workout — the best athletes train all their muscle groups and diversify their workouts to build strength and stamina. Working on a single activity or muscle can lead to injury and reduce performance.

Diversification in financial life is much discussed and well-established strategy. Having a cash emergency fund and diversifying your investments across different assets classes and geographies means that should one fail it has a limited impact.

(5) The hardest part is starting — there are so many competing priorities and demands in life its easy for motivation levels to continuously be below the threshold for action especially at the beginning — after all, what’s one more day?

The sad fact about finance is that there is rarely a good motivating factor for change. Unlike payments which give us a dopamine hit when we buy things and create a positive feedback loop the same does not exist in saving and investing. Its also in Big Banks best interest to keep our deposits in their low/no interest deposit accounts — its free money for them. The lack of motivation and inertia in personal finance is how Big Banks make their outsized profits. It’s simply not in their economic interest to give customers better value at the expense of their own. After all, where are they going to go?

(6) Prepare for the unexpected — it’s easy to be thrown off course by an unexpected event, an illness, an injury, an unplanned trip who knows. Don’t become so stuck in your ways you are not able to flex and adapt when it’s needed.

Financial resilience is the ability to deal with unexpected financial events — and we all have them. Most people’s path to financial resilience is accidental and only tested when things suddenly change. We believe planning for resilience means assuming that the unexpected will happen and planning accordingly.

So far so good — so if you are highly motivated and resilient and focus on the goal you can achieve, in time, both financial and physical health. But what about the differences.

(1) You can automate financial fitness — no one can get fit for you, even hiring a coach is only there as external motivation and guidance, you still need to do the hard work. Not so with finance. In the past people e.g. bankers and financial advisors have been paid to manage your money at a high cost and mixed results. But now tech is enabling an entirely new way to automate your finances effortlessly. In many ways, it’s better than doing it yourself because tech is really good at doing complex boring repetitive tasks — whereas humans are demonstrably not.

(2) Time is your friend with your finance — but makes life progressively harder in health and fitness. It won’t matter how superhuman fit, virile and agile you are in your 20’s it is a fact of life that all these things are temporary and your eyes, your strength and stamina will all become progressively harder to maintain and ultimately fail. With money on the other hand if you make good decisions in your 20’s, like drip-feeding funds into a low-cost diversified portfolio the power of compound growth works for you and can turn $200 a month into a multi-million dollar portfolio by the time you retire.

Unifimoney has been created to help harness the combined power of tech and compound growth to help make saving and investing automatic and effortless. Helping more people achieve financial resilience faster and with less effort.

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