What Is Financial Health? Why You Should Care?

What is financial health checkup and how to asses it?

“Money, like emotions, is something you must control to keep your life on the right track.” ― Natasha Munson

Our life majorly revolves around money and the day 2-day decisions we make to leverage it and manage it. Sadly we are not educated & trained enough to handle it with care!

There is no set curriculum or course in our ailing education system that teaches finance, nor there is a tradition to discuss money & finance in its most fundamental form within the family, even though the entire struggle is to become financially free.

We know how to take care of our physical health but when it comes to finance, the basics of income expenses, budgeting, savings & investing often get ignored. It’s only when someone in our family or loved ones suffers a huge financial setback that we start taking our finances seriously. Most of the time when we become serious, time & age are not there to help us get hold of our finances.

“When you are young and have started to earn some bucks, that's when you should start planning your financial needs and future goals. Being young gives you an advantage. You can take a considerable amount of risk, with a longer time horizon to make yourself financially independent ”

So what can we do? Is it such a big issue that can’t be tackled? Absolutely Not!

There is a framework & tools that if one leverage at the right age then they can know what their current financial health is looking like. Where are the gaps and how to overcome the same?

So what is that framework? This framework is called “Financial Health”

Let’s define the same and see why one should be serious about becoming financially fit.

What Is Financial Health?

I feel:

Everyone desires to be financially independent and that often comes when your heart and mind are free from any kind of worries related to life’s ifs and buts.

It is this state of mind when it comes to money that defines the concept of financial health

Financial health Insititute has taken the pain to define it appropriately and quotes

Financial health is :

The dynamic relationship of one’s financial and economic resources as they are applied to or impact the state of physical, mental, and social well-being.

Garman & Forgue, in 2018 defined it as:

Financial health is the feeling of having financial security and financial freedom of choice, in the present and when considering the future

Financial health is a composite framework that considers the totality of people’s financial lives: whether they are spending, saving, borrowing, and planning in ways that will enable them to be resilient and pursue opportunities.

In a nutshell,

It is the kind of framework that can help you understand your overall financial status and also points out

• Your ability to manage expenses,
• Your preparedness to absorb any financial shock and recover from it
• Your debt and the capabilities to get out of it
• Your potential to build sizable wealth for your secured financial future

What All Component Makes Up The Financial Health?

One’s financial health framework should include the Following

1. Family & Health Security:

• Adequate health insurance
• Adequate Term Insurance

Having an appropriate life insurance plan should be the topmost priority When it comes to financial health. Not having an adequate sum insured can put you under a lot of financial stress in case any medical emergency pops up. The cost of hospital bills is on the rise and if one has to pay the same out of their life-long savings or by taking loans then this will badly damage one’s financial health.

2. Emergency Fund : (Liquidity)

Having sufficient liquidity or hard cash in the savings account when in need is a must. While budgeting one should always prioritize keeping this safe cash aside that should be able to meet one's expenses when there is a sudden loss of jobs or regular income source. This liquidity should be kept aside keeping the duration a minimum of 6 months in mind.

Not having adequate emergency funds can put you in a soup and you may struggle to fix your financial issues if time is running against you.

3. Financial Goals & Investments:

After you have insured your family against the medical emergency and also have an adequate emergency fund in place if you are left with any surplus, you should plan your future financial goals like

• Retirement
• Child Marriage
• Kids Higher Education
• Buying a dream house or car etc.

These goals should be appropriately categorized into short-term and long-term goals keeping your risk-taking ability in perspective.

If you already have some investments and goals in place, you always need to revisit if those investments are sufficient to meet your coveted goals and if there is any shortcoming that needs to be addressed on priority.

Investing in your future financial needs should start early and should have a minimum time horizon of 10–20 years if you really want to be financially independent in the true sense.

Investing your surplus & savings is the best route to amass a sizable corpus to meet your future expenses which will pop up after you retire with no regular source of income. future Inflation also needs to be factored in apart from your risk appetites while doing your investment for your future.

Now that we have understood what ingredients make up a well-designed financial health framework, let's discuss some of the key benefits one can harness by knowing their financial health gaps

How Does A Financially Healthy Person Look Like?

As we discussed the key components that decide whether you are financially well or not largely boil down to your level of awareness about your overall financial parameters around you and your family security, your readiness to absorb any kind of financial shocks, and the kind of investment strategies you have applied to achieve your desired goals.

So if one has to understand his/her overall financial health, these parameters need to be monitored regularly. Let's see what all things need to be checked to have sound financial fitness.

How do you spend your income?

If you,

• Spend less than what you earn
• Pay your dues and EMIs on time and in full
• Your overall family expenses are on the lower side of the total family income
• Not over-leveraging credit to meet your expenses

You are doing great to never overspend more than what you earn and also will have more savings to invest for your secured financial future.

Savings habit :

The first thing that matters most when it comes to budgeting your finance is the habit of saving, the more savings you have the more you can use to manage your day-2-day expenses and any urgent financial needs that may pop up.

So if you,

• Have kept aside sufficient liquid cash (at least for the next six months )
• Have started to invest some of your savings to accumulate assets like mutual funds(in the form of a SIP), gold, real estate, etc.
• Have two savings accounts one dedicated to monthly expenses and the other for investing in asset classes.

You are on right track to achieving your desired financial goals

Borrowing Habits :

This one aspect of one’s life is very important to understand and control. Your spending habits largely trigger you to get into the debt cycle. This debt trap needs to avoid at all costs if you are serious about your financial wellness.

So if you

• Do not have a sizable debt load
• Have maintained a healthy credit score that signifies that you are paying back any dues and EMIs on time
• Do not hold multiple mixed credit account types like multiple types of loans and credit. This show that you are taking credit only when it is needed the most and not trying to pay off debts using other credit instruments or loans.

You are giving yourselves sufficient reason to save more and not live life on credit cards and loans.

Having Planned for Securing your future :

For building resilient and sustainable financial health, you need to have

• Appropriate life insurance plans especially if you have dependants in your family
• A well-rounded financial plan that is designed to meet all your & your dependent's future financial expenses.

Investing your hard cash has to be done with a well-rounded financial plan that factors in, your risk appetite, tenure(when you want to achieve the set goal), and market inflation. Having an expert opinion is highly recommended when doing financial planning (FinMapp’s financial health check and planning tool is designed to help you in all these aspects without any biases).

If you have taken care of all the above components you are the one who has identified their financial health gaps and has taken charge to get rid of these to live a financially healthy life.

Now that you have a fair idea of what makes sound financial health, its time to discuss the Financial Health Gap checkup and understand how one can overcome the same

What is Financial Health Gap & Why it is important?

All the key ingredients that come together to define the financial health status of any individual also become the key financial health gap parameters. These parameters are benchmarked against industry standards and financial experts to help one understand where they are standing in terms of their overall financial health.

So what are those Gaps, well I have listed the same below

• Not having adequate savings (liquidity)
• Not having adequate term insurance
• Not having adequate health insurance
• Having higher expense of living as compared to income
• Not having the required financial goals to meet future expenses, like retirement goals
• Not planning for a child's higher education and marriage expenses. etc...

If you have a shortfall in all or some of the above factors you are not in a healthy financial state. This situation should bother you and push you to fix the same so that you are not getting into a state where you are feeling helpless and stressed.

How To Identify Financial Health Gaps?

FinMapp has built a proprietary financial health gap check tool that takes

• Income
• expense
• savings
• Emergency Funds
• Insurance covers
• Existing goals and investments

Based on these parameters, it generates a financial health score whose values range from 1–5,

• If you fall between 4–5 you are doing excellent on all the given parameters
• If your score is between 3–4 you are doing average
• A score below 3 is a red alarm. You need to immediately fix the gaps by taking corrective actions suggested by our FHC(financial health check ) tool

Why you should take Financial Health Gap Checkup?

If one has not learned the art of managing and properly deploying hard-earned money it is going to be a difficult journey ahead. There is an exponential rise in medical expenses, recessions have become more frequent events and black swan events are now even more threatening and prevalent. So one needs to be aware of where they are standing in terms of their financial health as it offers the following key benefits

Do you Know How Much You Owe?

If you are doing a regular financial health gap check, you will be in a position to assess how much credit you have taken through the credit score check tool. You can assess your repayment cycle, and your capacity to settle the same.

Knowing your creditworthiness is always helpful so that in case you are in urgent need of money, you exactly know if that is a good option or not basis your liabilities.

You Know Your Surplus Well

Checking your financial health gaps also points out specifically how much you are spending and how much you are saving. Knowing your surplus is always good as you can use the same to create an investment plan that works for you to secure your future financial needs. Also, you will be able to regulate your expenses in the right manner.

You Know your risk profile better before investing:

When you get into the financial health check you also come to know what is your actual risk appetite. How much risk you can take is a very important factor to decide in which asset class you should put your money.

Asset allocation has to be strictly based on your risk profile, age and desired financial goal. You can assess your risk profile via FinMapp easily.

Let’s understand the same by example:

If your risk assessment grades you to be moderately aggressive, then the right asset allocation that would work for you is that a major portion of your surplus should go into equity(riskier) assets and the rest into the debt category, as shown below.

• Equity( MF/ Stock)/ US Stock ) 75 %
• Debt(MF/FD/Bonds): 20 %
• Gold, Silver Etc(Digital Gold/ Gold ETF): 5 %

Achieving your financial Goals become more realistic

One best things about financial health gap checks is that you get to know exactly if your existing goals will be met or not. If there is any shortfall, it will be clearly laid down to you so that you can take appropriate action and put your finances in place.

Not having financial goals and plans to achieve them, is one of the important aspects that impact your financial health badly, this gets highlighted when you take FHC, and not only that, you also get the strategy to plan the new goals that are appropriate for your future financial needs.

You Get A Peace of Mind :

Most of our life’s stress generally revolves around money and if you are not managing it well you mostly see it impacting your mental health. So if you create a discipline of checking your financial health from time to time and take corrective measures you will definitely attain peace of mind and your finance will be moving in the right direction.

A timely financial health checkup will alert you when things are going south and will give you sufficient time to enforce corrective measures.

How To Get Started Towards Financial Wellness?

• Download FinMapp

https://play.google.com/store/apps/details?id=com.finmapp.fininfinity

• Take Financial Health Gap Check

• View Your Detailed Report

Our Financial health report scores you on all the aspects of the financial health gaps discussed above and offers the health gaps that you need to overcome. Take actions based on suggested recommendations to overcome the shortcoming in insurance, financial goals, and overall portfolio health.

• Monitor your financial health regularly

Just like you need to get a regular body health check, you also need to reassess your financial health after every 6 months or the time preferences to factor in any changes in your assets & liabilities so that your financial health gaps can be analyzed accurately.

• Do check your financial Networth

FinMapp also helps you measure your status in terms of all your assets & liabilities to score your net worth. It gives you a fair idea if you are doing well financially or if you are in trouble due to higher debts that need urgent attention.

• Do Checkout the Tax Planning tool

Taxes are one thing that taxes your peace of mind a lot. So in extension to our resolution to help you achieve financial wellness, FinMapp has gone one notch up to help you plan your taxes well.

You can easily plan & calculate how much tax you have to pay in a given financial year, not only this while you plan the taxes you can easily do the required investment in ELSS funds, NPS, Insurance, and other tax saving instrument directly from FinMapp and ensure you are paying minimum taxes as per your income & investment declarations

Conclusion:

Financial wellness has been ignored for ages, but in the current market dynamics, especially if you are living in growing cities you can’t ignore it anymore, all your regrets largely have been around money, all your blunders have been largely around finances, it’s time to change and take charge your finance before its too late.

Download FinMapp & check your financial health now!

https://play.google.com/store/apps/details?id=com.finmapp.fininfinity