What is financial fitness? Briefly, financial fitness describes your overall financial well-being, akin to how physical fitness pertains to your physical health.
The American Medical Association says, “Regular physical exercise is one of the single most important contributors to a healthy lifestyle and delivers benefits which extend far beyond the doctor’s office.”
We aren’t doctors, personal trainers, or physical therapists. We will defer to the specialists in their respective fields for advice on maintaining a healthy lifestyle.
Notwithstanding the different fields of study, financial fitness, much like physical fitness, can yield benefits that endure well into the future.
Let’s dig a little deeper and better define financial fitness. Financial fitness encompasses the skills, knowledge, and tools that enable you to make sound financial decisions.
It’s not only about wealth or just investing. Enhancing your financial fitness provides you with valuable insights, boosts your knowledge of financial matters, and empowers you to make informed decisions regarding your finances.
That is, a financially fit individual possesses a solid understanding of their finances, which provides the confidence and knowledge needed to manage basic money matters.
Benefits include:
- Effective management of money
- Effective creation and adherence to financial guardrails (a budget)
- Effective debt management
- Aid in the ability to achieve your financial goals
- Fewer concerns about money and financial anxieties
- Increase in ethical decision-making when selecting insurance, loans, investments, and credit card usage
The seven habits of financially fit people
1. Set financial goals.
These are the targets you have set your sights on. They are not your neighbors’ goals. They are not your best friend’s goals. They are yours.
What are your short-term goals and long-term goals?
If you are married, it’s important that you set goals with your spouse.
Choose goals that motivate you, encourage you, and give you a sense of purpose as you achieve them. While goals can and should be challenging, they aren’t pie in the sky. Don’t shoot for the stars and settle for the moon. You’re more likely to get discouraged and give up.
Your goals should be SMART—Specific, Measurable, Attainable, Relevant/Rewarding, and Time-specific.
2. What are your financial values?
These are the principles that guide your finances and help you define your goals. Create a list of what’s important to you. How does this align with your spouse or partner? What commonalities do you share?
More importantly, do your financial outlays line up with your financial values? A quick review of someone’s checkbook, Visa statement, or financial spreadsheet will quickly reveal what’s important to them.
3. Create and adhere to a spending plan.
This is your budget. It must be realistic and include a savings plan. Build up an emergency reserve if you don’t already have one. You can even create savings “buckets” for items such as vacations and emergency repairs.
4. Keep track of your expenditures and stay organized
It’s not simply enough to have a spending plan. You can create a tracking system on a spreadsheet, a budgeting app, or even a spiral notebook. Keeping track of your expenses and comparing them to your budget will help maintain discipline and ensure you stay on course toward your goals.
You might be surprised at how much you spend on incidentals, which can help you cut back on unnecessary outlays.
5. Financially fit people live within and below their means.
Do you want money at the end of your month or month at the end of your money?
According to the Corporate Finance Institute, 78% of us live paycheck to paycheck. A layoff or financial emergency can be devastating.
Those who are financially fit have prepared for the unexpected and have reserves that help cushion unforeseen financial blows.
6. The financially fit create and commit to a financial plan.
A financial plan serves as a roadmap, guiding you from your present situation to your financial destination, defined by your long-term financial goals.
The plan outlines both short-term and long-term goals. It is tailored to your specific situation and incorporates strategies that assist you in reaching your objectives.
Please keep this in mind. You are not alone. We are here to support you. With your feedback, we help develop and track the progress toward your financial goals. Further, your plan is not set in stone, and adjustments can be made based on changing circumstances in your life.
7. Finally, steer clear of get-rich-quick schemes and scams that enrich only the crooks who promote them.
In 2024, the costliest scam by far was cryptocurrency investment schemes, with a reported median loss per individual of $30,000, according to Fraud.org.
How do these work? Typically, you’ll be approached by a criminal offering low or no-risk returns on cryptocurrency investing. Fake websites look trustworthy, but don’t be deceived! After the victim invests sufficient funds, the criminal disappears with your money.
Like physical fitness, financial fitness requires discipline and patience. It isn’t a one-time effort. However, embracing the principles of financial fitness will yield a lifetime of dividends.
Inflation, interest rates, and tariffs
What fueled the modest advance in the S&P 500 Index in January? Well, for starters, the narrative hasn’t changed that much since the calendar flipped to 2025. That is, with the exception of tariffs, which we will get to in a moment.
| Table 4: Key Index Returns | ||
| Index | MTD % | YTD % |
| Dow Jones Industrial Average | 4.7 | 4.7 |
| NASDAQ Composite | 1.6 | 1.6 |
| S&P 500 Index | 2.7 | 2.7 |
| Russell 2000 Index | 2.6 | 2.6 |
| MSCI World ex-U.S.A.** | 4.9 | 4.9 |
| MSCI Emerging Markets** | 1.7 | 1.7 |
| Bloomberg U.S. Agg Total Return | 0.5 | 0.5 |
Source: The Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
MTD returns: December 31, 2024–January 31, 2025
YTD returns: December 31, 2024–January 31, 2025
**in US dollars
Fueled by higher consumer spending, the economy is expanding, as evidenced by an annualized increase of 2.3% in fourth quarter Gross Domestic Product (GDP, according to the latest data from the U.S. Bureau of Economic Analysis.
Meanwhile, corporate profits are exceeding expectations, per data from LSEG, and inflation, while still elevated, isn’t showing signs of accelerating.
The Fed catches its breath
As was widely expected, the Federal Reserve held the fed funds rate at 4.25–4.50% at its end-of-January meeting, and Fed Chief Powell signaled the Fed is in no hurry to reduce interest rates.
But he didn’t close the door to further rate hikes this year, even as prospects for future rate cuts this year are currently limited.
But last month did provide some unexpected drama. On Monday, January 27th, a Chinese start-up announced that its DeepSeek’s AI models offered performance to the world’s AI programs at a fraction of the power and energy.
Semiconductor shares tumbled, and Nvidia (NVDA $120, 1.31.25), which is one of the largest stocks in the S&P 500 Index, shed 17%, or nearly $600 billion in market cap, per CNBC.
While the Nasdaq Composite and the S&P 500 Index ended the day down sharply, the Dow closed up, according to MarketWatch.
Notably, Bloomberg reported that a majority of S&P 500 stocks ended the day higher despite the sharp decline in the S&P 500. Over the past 20 years, there has never been a positive advance/decline when the S&P lost 1.5% or more.
In other words, the selloff wasn’t simply indiscriminate selling. Instead, it was a rotation out of several tech winners and into market underperformers.
It is yet to be determined how the DeepSeek announcement will unfold for the rest of the year.
While we rarely dive into the granular day-to-day action, we want to point out that the extreme market divergence on January 27th illustrates the benefits of diversification.
It also emphasizes that investors remain optimistic about U.S. economic prospects.
Investors take stock of tariffs
That brings us to the February 1 announcement by President Trump that he planned to enact a 25% tariff on Canadian and Mexican imports and a 10% tariff on imported goods from China. Oil would be taxed at 10%.
Canada and Mexico struck deals with the Administration that secured a 30-day pause in new tariffs on their products. China imposed new tariffs on a few U.S. products.
The prospect of such sweeping barriers to trade unsettled investors amid concerns such levies will boost prices and home and slow economic growth.
Why are investors fretting over new trade barriers?
Well, there is no modern precedent for such action, and it’s difficult to predict how a trade war, once it starts, might conclude.
You see, the market is worried that significantly higher taxes on imported goods will drive inflation higher, while the likelihood that Mexico and Canada will respond in kind with their own tariffs could sap demand for U.S. exports.
In other words, investors are concerned that we could see higher inflation and slower economic growth, at least over a shorter period. In turn, that could force investors to re-evaluate U.S. economic prospects.
Legal experts have said that the president, who referenced the International Emergency Economic Powers Act (IEEPA) for the new levies, will likely encounter challenges in court, as the tariffs are not industry-specific and instead are quite broad.
However, courts have traditionally deferred to presidents during emergencies. Thus, it’s uncertain how courts may ultimately rule.
Some analysts believe the president is enacting tariffs strategically, with no intention of maintaining them over an extended period. Others, however, point to Trump’s positive remarks about the benefits of tariffs and the necessity to generate revenue to reduce the deficit and fund his proposed tax cuts.
While the trade situation is fluid and could quickly change, the good news is that the U.S. economy is resilient and is less dependent on trade compared to many of our trading partners.
Final thoughts
As we wrap up this month’s letter, we would like to emphasize what we discussed last month.
A diversified portfolio cannot completely shelter you from market pullback, but it can help lower volatility and has historically been the most effective path to achieve one’s financial goals.
Our approach is guided not only by our experience but also by the weight of academic research. We recognize that stocks are not immune to periods of subpar returns, but patient and disciplined investors have historically been rewarded.
I trust you have found this review to be informative. If you have any inquiries or wish to discuss any other matters, please don’t hesitate to contact me or any team member.
Thank you for choosing us as your financial advisor. We are honored and humbled by your trust.