A quick 5-point checklist for your financial health

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HIGHLIGHTS

  • To begin with, you should have at least three months of salary in savings to give you an appropriate cushion to meet the demands in the event of unexpected shocks such as job loss.
  • Buy now, pay later, or short-term EMIs are usually expensive, even if you don’t realize it. If your CIBIL score is correct, banks will try to impose loans on you.
  • If credit cards and personal loans aren’t used responsibly, you can use these short-term loans recklessly, and most of your paycheck will go to paying them back.

A sound financial situation is the surest path to peace of mind. So it’s only fair to periodically check in on your finances and see how sound they are. Here’s a five-point checklist to make sure your financial health is healthy:

Savings: do you have any?

To begin with, you should have at least three months of salary in savings to give you an appropriate cushion to meet the demands in the event of unexpected shocks such as job loss. You should also have enough savings to cover unexpected expenses so that you don’t have to dip into your Pension saving or go into debt if you have already saved enough.

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“For any unexpected expense, people tend to take out personal loans, rely on their credit facilities, and some of them don’t know how to handle such an expense. So generally check if you have at less three months gross salary in savings. This will mitigate a financial setback due to unfortunate events such as losing your job or needing the money to do major repairs on your car or house,” says Archit Gupta , founder and CEO of Clear.

Use credit, short-term debt with the utmost discretion

The lure of going “a few extra bucks” becomes even stronger when you don’t have to pay immediately but at a later date. Buy now, pay later, or short-term EMIs are usually expensive, even if you don’t realize it. If your CIBIL score is correct, banks will try to impose loans on you. This is especially true for newbies or newbies – having a credit card is different from having the ability to pay it back in full, once used up to the maximum limit; it is the surest way to fall into the debt trap.

“If credit cards and personal loans are not used responsibly, you can use these short-term loans recklessly, and most of your salary will go to paying them back. be more money for living expenses and savings,” adds Gupta.

Missed and inconsistent payments will result in costly penalties and will have a big impact on your CIBIL score. Your debt-to-equity ratio says a lot about how you manage your finances and your ability to build respectable savings for the future.

“A high debt-to-income ratio reflects poor financial health. Make sure your percentage of monthly debt payments to monthly income is between 20% and 35%,” Gupta recommends.

Keeping your unsecured debt as low as possible is highly recommended.

Insurance: A point in time

Have you ever heard the proverb: one stitch in time saves nine? It sums up what insurance is. An annual health insurance premium worth a few thousand dollars can end up saving you thousands of hard-earned rupees in the event of a medical emergency. There are many well-documented accounts of Covid patients, especially those in metropolitan cities, paying lakhs for a few days of hospitalization, during the second wave of April 2022.

Insurance protects your savings against emergencies and safeguards your assets when unforeseen events occur. Unfortunately, only five percent of Indians are insured, of which two-thirds are underinsured, except Gupta. However, care must be taken that they are not over-insured. Appropriate insurance coverage will depend on various factors, such as age, financial liabilities, income, life goals, etc., he adds.

retirement planning

You need income to pay your monthly expenses when you retire. You will stop working at some point and cannot depend on a monthly payment for your work. You will need to have retirement investments that generate income for you. Your goal should be to have at least 75% of your gross monthly pre-retirement payment when you retire. By saving early, you can ensure that you use compound interest to your advantage. That way, you can make sure you have enough retirement savings, adds Gupta.

Regularly monitoring these indicators of financial vitality will make you more financially disciplined and will benefit you in many ways.

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