4 Ways to Assess how Financially Fit Are You

These simple steps will help you take charge of your finances

What is Financial Fitness?

Much like being physically fit, financial fitness is crucial to your well-being. Not having adequate funds to meet your needs can cause financial stress — which is not very easy to identify. It could affect your mood & productivity, without your knowledge of it.

To combat this stress you must assess your financial fitness at regular intervals, keep a tab & take corrective action if need be. Here’s how you can understand your level of financial fitness.

Understanding your Assets & Liabilities

  • The assets you own and the debts or liabilities you have, determine your net worth.
  • Calculating your net worth annually by adding the value of all your assets and subtracting your liabilities (from total assets) will give you a glimpse of your overall financial picture.

Knowing your Cash Flow

  • You must make a note of your basic monthly expenses. Do not include your one-off expenses in this, but the expenses you need for your basic necessities.
    Now assess, how much cash do you have left at the end of the month, after you have paid for your basic expenses. Is it lesser than your expenses? If yes, what you can do to balance this; perhaps cutting down on that extra social outing, or pushing a trip to the salon to the next month. In effect, please ensure that your disposable income is adequate to meet your monthly expenses.

Managing your Taxes Smartly

  • Set aside amount towards tax saving to claim full benefits & avoid paying extra in taxes every year.
  • You could start by investing in ELSS tax saver funds via SIPs and avoid year-end hassle of investing a lumpsum of Rs. 150,000 (the maximum exemption limit under Sec 80C, Income Tax Act, 1961).

Aligning your Investments with Goals

We all have certain long & short term financial goals. Assess them on a regular basis.

  • Ensure you set aside an amount & invest it in appropriate asset classes. For example, if you are investing to build a corpus for retirement, you should consider equity mutual funds. But short term goals such as buying a car, may require a mix of debt & equity funds.
  • Review this once a year to make sure your selections are aligned with your age & goals.
  • Pro tip: Add an emergency fund to your goals, if you don’t have one already.

Knowing your numbers, cash flow, goal-alignment & whether your tax investments are adequate, in good time, will reduce financial stress & render you financially healthier & happier :)

If you would like us to add more tips to assessing financial fitness, please leave your suggestions in the comments below.