Why You Shouldn’t Miss a Financial Health Check-Up

To which I reacted, "Aunty, Just like your yearly physical health check-up, it's important to schedule in a financial health check-up too. Health is multi-faceted, and all sides are linked to each other. Mainly, if your financial health is hampered it sometimes affects your physical, mental, and emotional health as well."

My uncle responded, "But, how can we sign up for a financial health check-up? We may need to consult a financial expert for that".

I answered, "Yes uncle, you could consult a financial expert or become a financial expert by empowering yourself with financial knowledge".

You see, setting some time aside to assess your finances and re-calibrate certain areas of your personal finance will only benefit your financial wellbeing. 2020 taught us how uncertainty and unforeseeable events can disturb our life; that we face financial hardships if we aren't prepared, like most of us have during the COVID-19 pandemic.

As the FY 2020-21 is coming to an end, you must take the opportunity to review your current financial situation and ensure to make the required changes with your finances to stay on track in the new FY 2021-22.

Here are some steps you could take to conduct your financial health check-up:

1. Prudent budgeting exercise

   Assess your previous year's budget and understand your expenses vis-a-vis your income. Analyse if your expenses have been more than you intended it to be, then reduce and/or eliminate the discretionary, unnecessary expenses. Check if you can save for a contingency fund and investment. Lastly, look for ways to increase your savings and investments to be in the pink of your financial health.

   Conducting a prudent budgeting exercise of your past financial year will give you a better perspective towards planning for the coming financial year.

2. Review your short-term and long-term financial goals

   If you're not in the habit of setting S.M.A.R.T financial goals, you must start this exercise at the earliest. Just like anything in life, goals can change over time. You can accomplish some goals, put others aside and make new ones. Take this step to evaluate the goals you have had in the past and rework them to reflect your new goals for the future.

   Financial goals are simply financial targets with a plan in place to reach them. Building a retirement fund or creating an emergency fund, saving up for a down payment on a car or house, or anything else that requires investment over time to reach the desired corpus. Evaluate your progress toward financial goals and make alterations as needed.

3. Evaluate your debt-to income ratio

   The last thing you want is to be carrying around excess debt towards the new financial year. Every debt you can pay off is one less bill that you have to worry about if you unfortunately end up facing any loss of income or unemployment in future.

   Computing Debt-to-Income ratio will assist you in determining your current debt obligations towards the income you earn and manage your debt to avoid any credit score complications. As a thumb rule, to ensure smooth servicing of loans/debt, the debt-to-income ratio should not exceed 40% and a high Debt-to-Income ratio will have a negative impact on your credit score.

   Keep a close eye on your debt situation. It can have a significant impact on how you apportion your income to saving and meeting your financial goals. Review your progress in paying off all debt, including loans and credit cards. If your debt is rising, especially credit card debt, it might be time to adjust spending so that those balances start to decline again.

4. Manage your taxes for the year

   You must evaluate various tax-saving investment options during the tax season and make investments accordingly into ELSS, PPF, ULIP, NSC, etc. and other options under Section 80C of the Income Tax Act, 1961.

   Make sure you have records/receipts for all tax deductions under their respective sections of Income Tax Act, 1961. You must pay attention to tax filing deadlines to claim for deductions and in general keep all tax documents in one place. You may want to schedule a meeting with your tax or financial advisor as part of your financial check-up to plan an effective tax saving strategy.

5. Look over your insurance plans

   Insurance is more crucial now than it's ever been, review your insurance plans and look at the adequacy of your insurance cover. Insurance needs may change over time; so ensure you have an appropriate amount of life and health insurance and if the insurance plans need to be modified accordingly.

   In addition, you need to make sure you have the right insurance cover for yourself and your family. Review your policies to see what's covered and what's not, if any changes have been made including the health insurance for COVID-19. Consult your insurance agent and ensure you hold the right insurance plans as per your requirements for future unprecedented events.

   The primary objective of insurance is not about investing to earn a return, but to indemnify risks to life and health. Essentially, this would safeguard the financial future of your loved ones and dependents.

6. Review your investment portfolio performance

   A major focus of the portfolio review will be how well it is aligned to your current situation. You need to check if the asset allocation in the portfolio and the investments you hold are appropriate to your current risk and return requirements. Assess your need for capital appreciation to achieve the envisioned financial goals.

   The probabilities are that an investment that is performing well today may not do as well tomorrow. You need to identify these schemes and shift to better alternatives. You may have to sell or exit from those asset classes in which you have more exposure than necessary or that are underperforming, and buy into financial products that will reflect your current financial goals and needs.

   While you review the performance of your investments periodically, you may decide to re-prioritise your goals and rebalance your investment portfolio to align with the envisioned financial goals.

   These essential elements for your financial health check-up should help you create a road map for enhanced financial health in the coming financial year. Ideally, schedule your financial health check-up annually or semi-annually. This is a sure shot way to help you keep your personal finances on track, no matter what curveballs life throws at you.

   Thus, many of you may now think to get this financial health check-up scheduled with your financial advisor. Well, you could do that but what if we say you can conduct your financial health check-up by yourself.

PersonalFN understands that not everyone holds the adequacy of financial knowledge and here we encourage you to enhance your financial knowledge and become a 'Financial Guardian', who understands the financial planning elements to guide your family through and become more disciplined with your finances so you can have a better financial future.

Financial literacy equips you with the right knowledge and you can give your family members the financial guidance they require to make sound financial decisions.

And in case you are wondering how to become that financial guardian for your family, PersonalFN's latest special initiative, the "Certified Family Guardian", offers you an exclusive opportunity to learn the finer nuances of money management.

Organised into eight modules with 24 extensive videos, the "Certified Family Guardian" will help you with all the relevant tools and learning modules needed to get better at money management and making informed financial decisions for yours and your family's secure financial health.

It also offers a host of other benefits to help you make informed investment decisions. Read here for complete details.

So, if you wish to conduct your periodic financial health check-up by yourself and maintain your financial well-being, enrol for "Certified Family Guardian" course today!

Warm Regards,
Mitali Dhoke
Jr. Research Analyst

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