After Body and Mind, Check your Financial Fitness Also

This week Our Prime Minister announced fit India Campaign “Body fit hai toh mind hit hai (If the body is fit, the mind is fit),” said Prime Minister Narendra Modi while launching ‘Fit India Campaign’ on National Sports Day celebrated every year on the birth anniversary of hockey wizard Dhyan Chand. 

In this day and age, tracking our health stats is very important and we all put efforts to make sure that our body is healthy. But what about our financial fitness?

Let us look at major parameters to know how healthy we are financially:

1. Spending Less then Income:

To be financial healthy it is very important that on cash flow basis we are in positive numbers. Means our monthly expenses should be less than our monthly income.

2. Paying all the Bills on time:

There are many utility/household bills like electricity, gas, phone, Credit card bills. Paying all the bills on time and in full is the good indicators of financial fitness.

3. Have Emergency Fund:

There are emergencies which comes without any prior announcements like medical emergency, job loss etc. In general, the more inconsistent our income is and the more dependents we have, the larger an emergency-fund cushion required. As a thumb rule we should have 3-6 months expenses as emergency fund in liquid mutual funds/savings accounts.

4. Have Sustainable EMIs:

Debt-to-income ratio (DTI) is a figure lenders use to gauge how well we manage our debt. To calculate DTI, add up monthly debt payments and then divide the sum by gross monthly income, the lower the DTI, the better it is. It should not be more than 40% in normal case.

5. Have a Good Credit Score:

Similar to a DTI, credit score is another way lenders measure how likely we will be able to repay our loan — and a lower score usually means higher interest rates on everything from mortgage to credit cards. Normally the credit score should be above 750+ in the scale of 900 to get loans easily at decent rates.

6. Have adequate Insurance:

Covering the risk is another important aspect to be healthy. Health Insurance, Life Insurance and Accidental coverage are important insurances. Having appropriate insurance allows individuals to be resilient in the face of unexpected expenses, such as the death of a loved one or a medical emergency. Every person should have appropriate insurance based on his age, income, number of dependents and risk exposure etc.

7. Have Sufficient Retirement Savings:

In today’s world when even government employees don’t have fixed benefits plan it is all more important to have Retirement savings looking at the socio economic structure and inflation. We all need to have sufficient retirement kitty as our longevity of age is also going up.

To keep our mind fit we need to be stress free. Financial wellness is the most important factor to remain stress free hence we all need to ensure that along with our body and mind we are financially fit also.

Are you Financially Fit?

In the monsoon season it is very common to have fever, chills, muscle aches, cough, congestion, running nose, headaches etc. Even some times people get dengue and malaria also due to change in weather conditions and high mosquito breeding. To avoid these problems we take certain precautions like not getting wet, drinking boiled water, avoiding outside/open food, keeping our surrounding clean etc.

But what about financial health, did we ever bother to check whether we are financially healthy?

As we need to be physically healthy, being financially healthy is equally important. Financial health determines how our future life will be, will it be comfortable and tension free or otherwise.

Our overall financial health comprises of many elements, like maintaining budget and living within it, spending within budgets, paying debts on time to build a good credit score, have proper defined financial goals be it short term or long term, investing properly etc.

So how should we maintain proper financial health and how to find out the symptoms of bad financial health? Let’s understand the points which can help us to be more financially healthy.

1. Don’t know where the Money is

In the current digital word spending/transferring money is very easy and fast. We make payments through Credit/Debit cards, online transfer through mobile apps and so on. In this process we forgot to keep control where our money is and how much actually is in our different accounts. Sometime this results into paying various charges/fees which can be avoided.

It is always better to keep a regular check on various transactions and balances of various online/offline accounts. Further we should be vigilant about the charges and fees levied so as to avoid them.

We should keep our bank passbook updated regularly or have the latest statements with us. It would be better to maintain our bank accounts in ms excel with us so as to review cash flows and have control on them.

2. Buying anything and everything by Credit Card

Many of us get into habit of using credit cards for buying everything. This sometimes leads to buying those items which are actually not required. As we don’t have to pay the money immediately we don’t feel the pinch of it. But remember nothing comes free and if we don’t pay our credit card dues on time there is a very high interest rate (36-48% annual) as well as the penalties.

By spending unnecessarily we will not be saving enough for our more vital future financial goals and perhaps drowning in debt.

We need to control our spending habits we are spending beyond our budgets by cutting down unnecessary expenses like dining out, buying expensive gadgets etc. The other option could be to increase our income by doing some part time job etc. However controlling our spending habit will still remain crucial.

3. No/Little Savings

Many people believe in today without bothering for tomorrow. They have very little savings although they are working for quite some time. We call it a bad savings habit. Those who have this habit should be careful as this can be just a start to a big financial crisis of the future. This can lead to the person in such a situation that he may be left with no money to meet vital financial goals, one of them is retirement.

To be financially healthy savings is the first and most important step. We should have habit of saving first then spending. Further we need to invest the money with a proper strategy so that it can accomplish our short-term, medium-term, and long-term financial goals.

4. Not planned for Emergency

The world is full of uncertainties and nobody knows about future. Emergencies such as hospitalization of family members, loss of job, etc. can knock the door anytime, so it is very important to plan for something which we never planned for. If we do not have emergency fund and proper insurance cover, it is a sign that we are not prepared for the worse in life.

We can keep our 6-12 months of regular living expenses, including EMIs as emergency Fund which can be kept in liquid funds so that it can be used if the situation arises. Financial security at those difficult times gives us more courage and strength to come out of it graciously.

5. Poor Credit Score

Some people have habits of using credit cards carelessly like buying items in EMI by credit card, paying minimum dues of credits cards or taking one loan to pay of the other loans. These habits lend a person into vicious circle of debt trap and a symptom of bad financial health.

This leads to poor credit score. Currently all lenders check credit scores and consider it as one of the most important deciding factors for sanctioning loans. A low credit score reflects bad credit worthiness and behaviour, and reduces the chance of a getting a loan at the best interest rate when a person needs it the most.

If someone is facing these issues then probably he need professional guidance to get out of it as soon as possible.

As we need to be physically fit to enjoy the life, financial fitness is equally important for a stressfree life. If we have any symptoms or poor financial health we need professional guidance to take corrective measures before it is too late.