Visiting a doctor once a year is a widespread practice. This yearly health check-up helps in identifying any health problems beforehand and facilitates an early treatment before the condition worsens. But what about financial health? It is essential for a stress-free life. A financially healthy person can withstand bad economic weather with no trouble. And, in order to be financially healthy, a regular financial check-up is necessary.
A financial wellness check-up shows a person’s financial position and recommends steps towards improving the economic situation. This financial check-up includes budgeting, analysing spending habits and savings and a few other steps (more on that a little later). This wellness review determines the measures that can be undertaken to make the financial position stronger, irrespective of the income. With a financial wellness inspection, it is easier to keep track of the expenditure, to decide on a savings plan, to draft and strategise the future and to experience financial freedom without feeling like a prodigal. Getting this wellness check-up done is crucial. A regular financial wellness inspection means a financially healthy life and that is all it might take to save you from going bankrupt. It also helps you in making full use of credit score and any other benefit that an excellent financial standing permits.
What can you do to check your financial wellness?
It is quite simple. All you have to do is analyse how you are spending money. Are you living a life that your money does not permit? If you earn just enough to maintain a good enough standard of living, buying the latest version of iPhone is not something you should do. What you should be doing is spending just the right amount and saving the rest for the future. Here are a few steps that you can take to check your financial wellness
- Budgeting: Making and reviewing the budget is of great importance. In fact, it is recommended to review your budget every month. Keep track of your money, check where your money is going, and take necessary steps to correct that. Check the kind of expenses that you are making. Spending on things like paying rent, loan, buying grocery and saving for the future, is compulsory and are necessary to maintain a good standard of living. Are you purchasing new clothes or gadgets every month? That is something you need to be careful about. Dedicate a tiny per cent of your income on such expenses and the rest on the compulsory costs and savings.
2.Debt to income ratio: Debt to income ratio is the amount you pay towards your debt every month. After you receive your month’s pay, calculate your debt to income ratio to figure out how much amount you actually have for spending and saving.
To calculate your debt to income ratio, add your expenditure on things like a mortgage, house loans, student loans etc. and divide it by your gross monthly income (income before tax deduction) and the number you get (taken as a percentage) is your debt to income ratio. The per cent should be less than 40% for a good credit standing. The lower the ratio, the better.
- Insurance: Invest in insurance because that becomes your knight in the shining armour when the unexpected happens. Should you lose your car in an accident, or your expensive jewellery to theft, insurance will help you in recovering from that cost and the shock. Life insurance helps your family financially when you die. Investing a little amount at regular intervals in insurance will help you in the long run. If you don’t have insurance already, it is highly advised to get one immediately. You can talk to insurance agents to choose the right plan.
- Emergency funds:Save a little amount every month for an emergency. Given the uncertainty of the future, it is best to expect the worst thing and be prepared for it. Save enough money to support a good standard of living for at least a few months. While you are at saving money for an emergency, save money for your retirement too. Start saving money for your retirement so that you don’t have to worry about it in your 60s.
Here are a few other things you can try:
- Pay your credit card bills on time in order to avoid paying additional interest.
- Get minor repairs done because “a stitch in time saves nine.”
- No impulsive buying.
Check your bad financial habits and correct them immediately, or you will fall into debt traps. If you are stressed financially, you will have to start looking into your spending habits. Look at your savings and ask yourself if you can build a dream house you are planning to or buy that car you’ve always wanted. Define your financial goals, and if you can’t meet them, it is time for you to reconsider your methods. If most of your expenditure is on branded clothes or expensive restaurants, cutting down on those expenses is essential. Know your money and set clear future financial goals, and work towards it. While you are cutting down on the non-essential expenditure, invest that money in something useful, like insurance and retirement plans. Make sure that your emergency fund can support you and your family for a few months, should something happen. Save money every month for a short-term goal so that you don’t have to deal with that financial burden in one month. If you want expert help in strategising a financial plan, you can always ask your bank if they provide such services. If not, you can always find specialists for this job. Whatever you do, make sure that you are free from financial stress because, at the end of the day, you can get nothing done with that stress weighing you down. Plan your finances smartly and spend your money wisely. With the small steps that you are taking, you can probably go on that dream vacation within a few years. That reward is going to be sweet!