Is your financial life on track?
Written on Friday, October 16, 2015
By Kumar Pushpraj
We all have a dream of ideal financial life. But what exactly an ideal situation is? A lot of investors do not really know whether they are doing good, bad or they are just average. Through this blog we will try to highlight few things that would help you decide how well you are performing at the financial front. Let’s start with simply putting these 7 questions to you.
Are you left with a decent surplus, every month?
Not having surplus at the end of the month is a negative indicator. It is really important to have a good surplus each month after managing all your expenses. What is that decent amount? Well, it should be at least 20-30 percent of your monthly earning. Say your salary is 1 Lakh, so you should be left with 30,000 in your bank account before your next salary arrives. It is a good approach towards building your wealth.
On an early basis, is your net worth moving up?
Leaving aside few occasional ups and downs, ensure that your net worth is going up every years. It becomes even more vital in case you are approaching retirement age. Why it is important? Over the period if your net worth is good, you will feel the effect of compounding working lavishly in your favor.
Are you heavily dependent on loans?
Suppose you have to live without your credit card for next 90 days, is the thought creating some panic in your mind? If yes, that clearly states your debt situation. It means you are dependent on loans for your basic needs too, that may be paying bills or covering travel expenses. This is an unhealthy sign for your financial health. So, start using your credit facilities for EMIs which you can easily payoff within provided time frame and do not let it add a sense of liability.
Do you have a plan to save you from external risks?
By external risk I mean to ask if you have availed health and life insurance plans, because these expenses can eat up your savings at one go. Let’s say you have been saving to buy a new car and suddenly you or your spouse has to go under a major surgery, this is something which you can anyways not ignore resulting in heavy expenditure. In case you don’t have sufficient saving, this would create additional burden of loan.
Are you prepared to handle surprise expenses without help?
There is very limited scope of managing surprise expenses on a short notice. Here we are not talking of health care expenses but urgencies like sudden lending. Let say you get a call from your father who is in need of Rs. 1 Lakh in next 10 hours, can you manage it without taking help from a friend or relative? If you can’t, you need to start planning for such urgencies.
Are you investing a minimum of 10% of your income regularly?
It is never advised to invest beyond your capacity but make it a habit of investing at least 10% of your investment. If you are still single or don’t have any major liability, you can always increase you quotient. You should opt for plans that can inculcate a disciplined investment habit in you. And for that nothing works better than a mutual fund SIP.
Is your investment inflation proof?
Last but not the least, before investing or after investing do a regular check of yield and analyze if your investment is giving you a return which is inflation proof. It makes no sense to earn 8% in a fixed deposit, out of which 30% will be deducted as tax (if you are in 30% tax bracket), and left with 5.5-6% return at the end of the day, whereas prices of all things are going up by 8% (aprx)inflation.
Out of these 7 points if you have scored positive with at least 5 you are in better position but would need a systematic planning of your wealth. But if you have a score of below 5, you should definitely go for a comprehensive financial assessment and then plan your wealth accordingly.
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