6 Important Elements of Your Financial Health

When was the last time you thought of checking the state of your personal finances? A long time back? 

Well, you’ll be surprised to know how many people make this mistake. It is always interesting to keep a tab of your finances, no matter whether you are just starting out on your career or are on the verge of retiring. It is always important to know where you stand in matters of your finance, before buying anything substantial. It helps to know what is realistic and what is not. It helps you to prioritize your financial goals too.

But…how can you know that your personal finance is in a good state? Easy! Just check the state of the below given areas of your life. Read the article below, and you’ll learn how to assess your finances, and what you should do when you do know what your situation is.

1. Your retirement savings: No one works forever. After a point of time, you’ll have to retire. It is therefore to save for your retirement since then you’ll have no income. Well, you may have, but it is safer to assume that you won’t have. Thus, by that time, you’ll have a nice nest of funds to fall back on. You should start saving for your retirement, the sooner the better. Saving for retirement is a top priority. Start by saving 15% of your income for this purpose, and your aim needs to be to replace 70% of your income when you will retire. At the very least, match your company’s contribution to your PF account.
   

2. Your debt: You can have debt in the form of student loan and mortgage. Know that not all debt is bad. However, debts having variable or high interest rates can be a problem. If you are managing your debts well, you won’t need to worry about them. When you do find out what your debts are, make a plan to pay them off. Use the help of a financial advisor if you have to.

3. Your income: Always focus on your Take Home Salary as this is the salary that remains after all manners of deductions and taxes. Your take home salary is the best way to measure your income. Your goal, as always, is to spend less than what you earn. It is never sustainable to spend more than what you are earning. If, by any chance, that is what your situation is right now, determine how you can cut down on costs.

4. Your emergency fund: An emergency fund, as the name suggests, is for emergency situations. If you don’t have one yet, it is time to build one. Start by keeping a bit of cash aside every month in a savings account or in a money market account. 

5. Your credit score: Your credit score is a sign of how likely you are to pay back any loans. Your credit score is based on factors like credit utilization and credit history. It is important because it determines whether or not you’ll get the loan. 300 to 629 is considered to be bad credit score, 630 to 689 is considered to be good, and credit scores above 720 is considered to be excellent. If you want to build up your credit score, you need to pay bills on time and pay back your credit card balance each month.

6. Your insurance: You insurance coverage may include things like car insurance, home insurance and life insurance. You may also want to get disability insurance. At the very least, you want to have insurance enough to protect yourself from financial loss. 

To conclude

If you are not yet as financially prepared as you thought you were, don’t worry. Now you know in which areas you need to pay attention and what you need to do there.