Whether you are a professional or an entrepreneur, you must keep a tab on your financial health. Just like you would enrol in any wellness or fitness routines and integrate dietary changes in your lifestyle to keep yourself physically and mentally healthy, it is important from time to time, to do an analysis of your personal finances to understand what your financial fitness levels are. Like everything, start with a financial body check. Are you financial buff or do you need to trim some spending fat? Are your savings plans of the right weight or do you need to alter your financial diet to make some gains? Here is a workout routine that will help you analyse and prepare a monetary workout plan to transform your financial health:
Routine 1: Make a Budget
To pump up your finances, you first need to analyse what shape your savings are really in. Even if you are determined in your cardio routine while exercising, you might be ignoring muscle groups making yourself susceptible to injury. Similarly, while planning a healthy financial routine, you first need to know exactly where you stand where your savings and investment portfolio is concerned. This is when you must focus on budgeting to know exactly what shape your finances are in and then take planned action. Here is how you do that:
Check your vitals! Do you have an emergency fund? Is your outflow greater than your inflow every month? Also analyse what your weak spots are – do you have a tendency to overspend on shopping, for instance, or are you at that time in your life when you should get insurance and so on. What is your credit score? All this will give you an idea of where you stand as far as your personal finances are concerned and then create a budget that benefits your long-term goals as well as short-term.
Now that you know where you stand, it is time to make a routine and work towards a goal. It is advisable to have specific goals and then create a financial plan towards achieving it. For instance instead of saving more if your motivation to save more is to pay off an auto loan, then start budgeting for that in your plan.
Routine 2: Get an Emergency Fund
It does not matter whether you have just started working or if you have been working for a while, you must create an emergency fund. This fund is made up of savings kept aside for any unanticipated yet critical expenses you might incur. This is much akin to all safety gear you may procure to avoid gym injuries like a muscle pull or a bone injury that may set you back in your routine. Note: the emergency fund is not to make any intended purchases but is to be used in case of an unavoidable situation – like an unfortunate accident, illness or any other such circumstances. Here is what you need to set up a fund:
Create a recurring deposit that allows you to set an automated monthly transfer from your salary or savings account. Instead of letting the money just sit in your account, a recurring deposit takes away the temptation to spend and pays a good interest rate as well. iWish by ICICI Bank is one such recurring deposit that allows you the flexibility of saving any amount ant at any time. This deposit gives you the same returns as a fixed deposit would, making your savings grow. It also allows your loved ones to contribute making the fund grow faster.
There are two kinds of emergency funds that you can create, long-term funds and short-term funds. A long-term fund is six to nine months of income and provides you with a safety net in the event of a loss of a job or even if you find yourself in a pile of debt. Whereas, a short-term fund is ideally a cumulated amount of three months’ savings of your income. This can be used in the case of any minor emergencies like a car breakdown or house repair that is urgent.
Routine 3: Create a Retirement Fund
How many times have you been told that for a healthy body in your golden years, it is ideal to start upping your wellness levels in your 20s and 30s? Your finances should be based on a similar philosophy. Let us face it, you will not work all your life and depend on it as a source of income. To up your financial fitness, create a retirement fund. Not only do they have a tax benefit, but they also offer security and stability in your golden years. Here is what you need to do to get one:
Do your research and spend some time reading about what kind of benefits various retirement plans and schemes have. Comparison websites, like policybazaar.com, offer you various policies that can be considered for you to select a relevant one. Some things you must consider while buying these schemes are minimum guarantee that according to the IRDA guidelines should be non-zero returns on premiums. You should also look at what tax benefits you get on the policies, what is the inflation rate of both accumulation period and the distribution period and so on.
The wise thing to do here is to let your money sit and accumulate. Only use it when you are in your retirement years. Moreover, early withdrawals often come with penalties that can be an unnecessary expense.
Routine 4: Reduce your Debt
Just like that extra flab you gain on a binge, credit card debt is an avoidable expense that you willingly take on. Having said that there is nothing wrong with a little bit of indulgence, just as long as you know you have to put in the time to reduce the debt. Here is what you should do:
Credit cards are a part of our day-to-day purchasing lifestyle and in some cases we end up swiping our credit cards without thinking twice. Before you know it, you might be saddled with paying back a lot more than you could afford. So apply this logic before you make a purchase. Consider that whether you will have any balance on the card that you cannot pay in full at the end of the month you make the purchase in. It is another thing if you do not, check if you have the capability to pay with how much ever you are currently earning. If you cannot, then use your card as sparingly as possible. This is an exercise in self-restraint. Of course, if you cannot avoid the purchase by all means, make it.
If you have a large outgoing on your credit card each month as part of your minimum due, stop making additional purchases on it completely and focus on just repaying the amount back. Do this till your credit limit is restored to full again and your dues are down to zero. This is your optimum no debt fitness level.
Routine 5: Involve your Partner
If you are married, then it is ideal to involve your partner in your financial fitness routine. It is akin to taking a morning walk or enrolling for a Yoga class together. Managing household finances, investing in insurance and savings plans is a joint exercise and will affect both of you equally. Here is how you can achieve financial fitness as a couple:
Once a week, chalk out time to sit with your partner and discuss your household finances. This will help you in finding a joint solution to a financial dilemma you might be facing and also plan your monies well.
Track and categorise your expenses with a money-management tool. My Money by ICICI Bank lets you categorise your expenses and helps you keep a track of your budget. Not only do you have an exact figure of how much you spend on utilities and necessities each month, but also you know where you spent more and where you can cut back. It is extremely helpful also if you are planning on saving together for a major goal – like planning your family, buying a house or even taking a holiday.
So now that you have a financial fitness regime, it is time to put it into action and begin a healthy, wealthy and wise lifestyle!
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