How healthy are you financially?
Everyone is familiar with routine physical health check, Right! Typically performed once a year by your family physician which covers full physical examination, blood/fluid test, etc. Why do we do this for our entire family once every year? A simple reason would be to make sure our family is healthy. This is a pro-active step which we all take to ensure our families remain safe and any sign of illness can be tackled well ahead of time.
Similarly, we all should also be aware of our financial health check to ensure any weakness in our financial life can be tackled well ahead of time.
Financial Health Checklist
Organize our finances
Make sure we understand our financial needs such as daily finances, preparing a monthly budget, have an understanding of our income and expenses on monthly basis. We should have a quick way of knowing following items regarding our finances:
Money management software might be useful in tracking most of the above items:
Life Insurance
Things to remember:
Succession & Will,Trust, Probate
Make sure we understand our financial needs such as daily finances, preparing a monthly budget, have an understanding of our income and expenses on monthly basis. We should have a quick way of knowing following items regarding our finances:
- Monthly Income - Total income from all sources such as salary, pension, rental income, etc.
- Monthly Expense - Total expenses due to all payees including groceries, utilities, rent, credit cards, mortgage loans, student loans, etc.
- Monthly Budget - Make sure we have a monthly Budget which is updated every 6 months. If we have never created one or do not know how to then simply start by creating a budget using information provided here. Typically, budget is prepared by taking average values for that category for past 6 months. e.g. Average monthly income for past 6 months, average monthly expenses for past 6 months, etc.
- Total Debt - How much total money we owe to others from mortgage loans, student loans, credit cards, private loans, etc. How much APR % we pay for each one. As a rule of thumb, always try to pay off credit cards or private loans which have high interest rate.
- Current Home value - Make sure to know current market value of your residential property and NOT what you paid for your home, especially if you own it outright.
- Total Assets - Understand market value of our assets such as total investments market value, total retirements market value, etc.
- Emergency Liquid Funds - Typically we should have 6-8 months of emergency funds which equates to 6-8 times average monthly expense.
- Retirement Planning - Funding PPF regularly for tax benefits and having an investment strategy. Take a look at Seven Golden rules of retirement.
Money management software might be useful in tracking most of the above items:
- Desktop Portfolio Management Software - Free and all data is stored on your computer which would be considered much safer
- Online Money Manager Software - Artha Money, Rupee X, Perfios, Invest Plus (Some online services are free while others provide free limited service)
- Review of Portfolio management software's in India
Life Insurance
- Why do we need a Life Insurance? Types of Life Insurance? etc.
- How much Life Insurance do we need?
- Is Buying Insurance from Private Insurance Co.’s in India a Good Idea?
- Term insurance vs endowment plan: Which benefits you more?
- Why Endowment policy must be avoided?
Things to remember:
- Term life insurance is the cheapest and considered best if the objective is ONLY life insurance
- DO NOT confuse insurance with investment and ALWAYS keep them separate
- Be careful of any life insurance plan/policy guaranteeing to provide better returns at maturity or via other channels may be "to good to be true", hence do your homework before buying into any policy/plan
- Before buying any policy make sure it is RIGHT for you and serves in your best interest and NOT in the best interest of the person selling you that policy
Succession & Will,Trust, Probate
- Estate Planning
- What is a Trust and Will?
- Your Estate Planning Questions - Do we need a Will? Shall we consider a Living Trust! What is the Hidden Double Tax?
- Inheritance tax and law