Aditya Birla Sun Life Mutual Fund

How is your Financial Health Report?

Jun 20, 2019
5 mins | Views 8579

Health is wealth. And not only physical but financial too. That is why it is important to look at one’s financial health report from time to time. Here are some pointers that you must follow to remain in the pink of health financially!

  • Know your net worth

    Knowing this information will tell you where you stand currently financially. All you need to do is to subtract your debts and other liabilities from your assets. This data point will serve as your base line for any other financial planning activity.

  • Create a monthly budget

    The first step in any financial planning activity is to analyze and understand the current expenses. One of the most common budgeting hacks that people refer is the 50-30-20 rule. It says that not more than half of your monthly income should go towards your needs or living costs such as rent, EMIs, household expenses, etc. 30 percent can be spent on things you want such as shopping, travel and entertainment. Make a detailed list of all your monthly expenses and see if you fit within this range. If not, then see if there are some wasteful expenses that you can let go off.

  • Save for a rainy day

    You never know when life might throw a bouncer at you. Hence, it is important that you are prepared with adequate savings to take care of such unforeseen circumstances. Aim to save enough money to cover 3-6 months’ worth of living expenses to be prepared for eventualities. In fact, do not keep this amount in your regular account. Else they might get used up for some ad-hoc activities or impulsive buying.

  • Insurance is a must

    Life & health insurance is a must for everyone. The basic rule of thumb is that your life cover should be in the range of 7- 10 times the annual earnings. One should also ensure that the coverage is sufficient to take care of outstanding loans and important life events in your absence.

  • Future financial goals

    Do you dream of owning a luxurious car in the future? Or a lavish house? Fancy a world trip? Want to send your children abroad for higher education?

    It is important to introspect and analyze one’s life goals and the money needed to fulfill those desires. Only once you know the target where you want to reach, will you be able to save or invest accordingly. Especially, because there are different investment options for different goals. For instance, in case of long term goals, one can consider investment in equity funds. They have the potential to generate reasonable returns in long term. For non-negotiable needs that need to be fulfilled in the short term such as kid’s education, loan repayment, you may consider investing in traditional investment instruments or debt mutual funds.

  • Make wise investment choices

    One size does not fit all. The same logic also applies to investment. Just because a particular scheme has benefitted your friend, does not mean you blindly put your money in it. Understand the return and risk involved in any investment and see if it is compatible with your budget and financial needs. Choose the right asset allocation strategy basis your profile and goals. For instance, if you are young and ready to take risks, you may opt for majority investment in equity mutual funds.

  • Diversification is key

    Do ensure not to put all your eggs in one basket. Smart diversification across asset classes and investment products can help you minimize risk and maximize returns on your hard earned money.

  • Periodic review

    Investments are not a one-time activity. One must review the investment choices or their asset-allocation strategy periodically. You may want to make changes in your portfolio basis the market conditions or revision in your financial goals or profile. A quarterly review will help to ensure you remain on the right track. Any major deviation from your expected outcome should call for a portfolio rebalance.

Final Word

These simple finance fundamentals will help to keep you on the right track. However, always remember that you need to customize your financial decisions after taking into account your lifestyle, risk appetite and future goals. Stay healthy, stay wealthy!

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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