6 Questions to determine your financial fitness

Financial fitness or fiscal fitness like Physical fitness is very important to lead a happy and healthy life. Research tells that mismanaged finances are one of the major causes of Stress in one’s life which in turn affect physical and emotional health of individual.

You are considered to be physically fit if you can run a long distance or lift a lot in the gym. Your endurance level, your body composition, physique, flexibility and overall health becomes part of your physical fitness. Your financial fitness also requires endurance in money terms i.e. how long you can be able to handle the stressed financial conditions, how efficiently you manage your money and maintain a balance between growth, liquidity and safety, your portfolio composition, flexibility in the portfolio also plays a major role.

Below are some of the pointers which will help you check your personal financial fitness level:

1. Your Physical health:

There’s no denying the fact that healthy mind lies in healthy body, and to extend this statement i say that healthy finances are result of healthy mind and body. All things are interrelated .So before everything else, make sure you keep yourself in good shape.

Bad health impacts your personal finances badly, which may worsen the situation further. So your financial fitness is a factor of your overall fitness.

2. Arrangements for emergencies:

How prepared are you and your family for situations like sudden hospitalization, Job loss or major repairs (car, house) etc.? There are some risks that can be transferred to insurance company, but some are to be absorbed in personal finances.

The quantum of emergency fund, involvement of family members in financial decision making and book keeping, life/health insurance cover etc tells your readiness to face life’s uncertainities.

If you are in a habit of digging out emergency fund every now and then or are dependent on your employer for all your insurances or feels that your family would not be able to understand the nuances of financial planning then this is not good for your financial health.

3. Credit report:

Your Credit score is another parameter to find out your financial fitness level. Healthy Credit score i.e. anything above 750 is always desirable among financial institutions. High credit score depicts your discipline and clear intention towards credit usage and also good management of your finances. Everyone likes to deal with an organized person with integrity.

While good credit score is very important to get loan when required, now days some employers also look at Credit score of the candidate before employing them. (Read : How to improve cibil credit score)

Even SEBI has asked for my Credit report before approving my application of Registered Investment adviser.

4. Employability:

Situations like Job loss definitely requires sound financial back up but along with that it also requires you to be employable all the time. As the saying goes “Investing in knowledge, pays the best interest”. Your financial fitness level also depends on your employability status. You need to invest money in upgrading yourself and have to be abreast with the fast changing world. This is required to always keep you employed even in bad economic scenarios.

5. Know what you owe and own:

Your fitness level also requires you to be aware of your strength and weaknesses, so you can improve upon your strengths and fix up your weaknesses. You are financially fit if you are organized in your finances; you know your assets, liabilities, net worth. When you know that you are spending more and saving less, then surely someday you will act upon this anomaly.

(Download : Financial record keeper e book to organise your financial records)

6. Portfolio composition and flexibility:

Just like physical fitness requires adequate amount of vitamins and minerals in your diet, same way to have fiscal fitness your investment portfolio should be having adequate mix of growth and liquidity. For e.g. Keeping 90% of your investments in real estate or paying more than 50% of your income as Loan EMIs are not the sign of financial fitness.

You need to understand what investments are meant for what goals and must select right product as per time frame and risk profile.

Conclusion:

Achieving financial fitness is not a one-day task, you need to follow a process and have a disciplined approach towards this. Sometimes it is easier to achieve but difficult to maintain. But it is very much required for your overall health. It helps in managing the stress level and improving your performance in work too. It is high time employers should understand that personal financial distress is one of the cause of low efficiency among employees and thus work towards the overall wellness of employees which also include their financial fitness.

No one’s ever achieved financial fitness with a January resolution, that’s abandoned by February – Suze Orman

Start working on your fitness today.