Do you know what precisely financial fitness is and how to assess it?
Something more like a lifestyle that requires your earned income ought not to be exceeded, which requires consistency, discipline, and determination in everyday practices of yours. At exactly that point, you could be able to achieve financial fitness in a genuine sense with no financial stress.
It would be best if you were attentive to maintain your finances appropriately, and it will make you feel great about your financial situation. Good financial health flaunts you are decent in managing your finances, and also you are capable enough to meet your financial emergencies of current or long-term. It is also the most essential aspect of getting “Financial Peace.”
“You must gain control over your money, or the lack of it will forever control you.” -Dave Ramsey
In a more precise way, I will brief you about how you could understand your financial fitness. Financial planning is a critical perspective to accomplish your financial goal. You need to analyze where your money is going (make a proper note of the same) and accordingly manage your funds. Further, the two aspects, i.e., saving and investment of your funds, are highly eminent for the better side and avoid unnecessary expenses. It would be best if you kept up a calculable lifestyle to move toward financial growth. It is much needed to know where you have to invest, and it ought to be your intelligent move. In the end, you should update yourself from time to time about how you can be financially fit and also you can take advice from the experts.
As you maintain and work on your physical fitness; likewise, you need to assess your financial fitness to keep up your financial health stabilized and fit.
Here I will show you how you can determine your financial wellness.
1. Perceive your whole Financial picture
To perceive your financial picture’s genuine glimpse, you should know what your assets and liabilities are. At exactly that point, you get to know your net worth. You can calculate your Net Worth by using the given formula:
Net Worth = Total Assets – Total Liabilities.
2. Understand your Credit Score
Knowing your credit score is a critical aspect of the assessment part. Several authentic bureaus provide your credit score in the form of a credit report, which is detailed and adequately scrutinized. A credit score report shows the creditworthiness, debt repayment history, or your credit history to keep your financial health up. Instances of bureaus are:
- TransUnion CIBIL – score ranges from 300-900 shows individual creditworthiness, 600 and below shows poor creditworthiness, 800 and above shows excellence. Experian offers a free credit report that ultimately helps you make the best financial decisions and early aware you if they detect anything wrong.
- Equifax – It helps monitor your credit, social security number, and shows potential frauds by tracking the credit and financial alerts.
3. Make sure you know the exact picture of inflows and outflows
Inflows and outflows are all about the cash flow where an inflow of cash determines what is coming inside and outflows, i.e., the cash going outside. You need to pen down all your inflows and outflows, whether your general expense or income. You need to maintain a note of your expenses on a weekly or monthly basis to easily assess what money you have left with after your expenses. Also, you can compare it with your previous notes.
If you find it is exceeding, figure out why and cut down the unnecessary expenses (not the primary and needful ones) from the next time, and instead invest in something that can give you return or else for better save it.
For instance, you want to buy a smartphone, which is your current need, and for that, you want certain features. To maintain your budget, instead of looking for the expensive brand models, go for the brand that provides the same features at less price. Here opting for less expensive brands would be a smart move; you can save some money and also invest it.
4. There should be an appropriate allocation of your assets
Asset allocation is all about when you implement investment strategies to balance the potential risks and reward by allocating portfolio assets as per the goal alignment, tax investments, risk-bearing capacity, and investment time frame of an individual. It ultimately reduces financial stress and boosts up your financial health.
Whatever the age group you belong to, you must have several short-term and long-term financial goals. It is much needed for you to properly scrutinize your finances and accordingly invest it in the appropriate allocation of assets.
- Equity Mutual Funds or the Equity related instruments are highly ideal for the mid-age group, and it is moderately good for the age group of 55 above.
- Debt Mutual Funds, Bank FDs, Bonds, or debt-related instruments are highly ideal for 55 above, and it is moderately good for mid-age groups.
- Investment in Gold Funds or real estate should be suitable for the age group of 25 above.
5. Add an emergency fund
It should be hell essential to add an emergency fund from your income as it will help you out in the unforeseen events, where the chances of shortage of funds is higher. It would be best if you made sure while investing for the same, the investment should be made in financial instruments that are redeemable and highly liquid.