Assessment of your Financial Fitness
Discipline: What are the ways in which you spend and save?
- Net Income: Should grow each year by at least 7% to 9% to keep up with inflation. Maintain multiple sources of income, both active and passive.
- The 50-30-20 rule: Allocate 50% of your income for need-based expenses, 30% for want based, and the remaining 20% for savings.
Preparedness: How prepared are you to weather financial shocks?
- Liquidity: A thumb rule is to keep 6 months of expenses in liquid savings
Persistence: Your ability to manage debt and pursue essential life goals
- Debt to income (DTI) ratio: Ideal DTI ratio should be 30% or under
- Credit Score: Higher your credit score (CIBIL or equivalent), the better your chances of securing credit from Banks & NFBCs.
Check the health of your wealth!
You are financially fit when you:
- Maintain a balance between income & spends
- Build and keep adequate reserves
- Prioritize saving & investments over spending.
- Have the ability to recover from a financial shock
- Can service existing debts & have access to additional credit
- Effectively deploy a range of financial instruments