Personal Finance Health Check

We’re all accustomed to the goal-setting checklists at our workplace that help synchronize our personal objectives with the company’s ambitions. Similarly, we undergo an annual health examination, guided by specific health metrics, to maintain our physical health. In the same vein, here is a detailed checklist designed to evaluate and improve upon your financial health within the context of India’s economic environment.

I. Budgeting Brilliance

1. Are you diligent in monitoring your monthly expenditures?
2. Are you familiar with the concept of an emergency fund?
3. Is your emergency fund sufficient to cover your expenses for 3 to 6 months or more?

II. Insurance Essentials

1. Do you understand the purpose and benefits of term life insurance?
2. Have you secured term life insurance that provides coverage for yourself and your dependents?
3. Have you obtained health insurance for yourself and your dependents?
4. Do you possess comprehensive knowledge of your health insurance benefits and limitations?
5. If you have vehicle insurance, are you fully informed about its scope of coverage?

III. Savings Stability

1. Do you regularly set aside a portion of your income for savings each month?
2. Does the amount you save monthly exceed 20%, 40% or 60% of your income or more?

IV. Credit card management

1. Are you the holder of any credit cards?
2. Do you fully understand and utilize the benefits offered by your credit card?
3. Are you consistent with making full, on-time payments on your credit card?

V. Good & Bad Loans

1. Do you currently have any unsecured personal loans?
2. Have you taken out a loan for a Home?
3. Have you taken out a loan for a vehicle?

VI. Investment Prudence

1. Are you informed about the actual rate of inflation and its impact on your savings?
2. Do you possess knowledge of various financial instruments for investment?
3. Have you spread your investments across different types of assets such as stocks, bonds, and real estate?
4. Is your family informed about the details of your investments?
5. Have you designated a nominee for your investments and informed them about it?

VII. Retirement Readiness

1. Are you informed about government retirement savings schemes such as the Public Provident Fund (PPF) and National Pension Scheme (NPS)?
2. Do you contribute to retirement savings schemes like PPF, EPF, or NPS?
3. Do you have an understanding of Financial Independence, and are you actively pursuing it?
4. Have you achieved Financial Independence with a net worth that is 10, 25 or 50 times your annual expenses?

VIII. Tax Obligations

1. Do you handle your tax-filings independently?
2. Are you knowledgeable about tax liabilities and potential deductions?

IX. Regular Reviews

1. Do you conduct periodic reviews of your financial status to adjust your investment strategy accordingly?

X. Final Will

1. Have you drafted a will and made your family aware of its contents?

Determine Financial Health-Score

Assigning weights to the above financial health checklist involves evaluating the importance of each item in relation to your overall financial goals and stability. Here’s a general approach you could consider:

1. Determine Importance: Reflect on how crucial each area is to your financial security. For instance, having an emergency fund might be more immediate than real estate.
2. Assign Weights: Allocate a percentage weight to each area based on its importance. The total should add up to 100%.
3. Evaluate Performance: For each area, assess your current status against the ideal scenario. You might score yourself out of 10 or use a similar rating system.
4. Calculate Weighted Score: Multiply your performance score by the weight for each area.
5. Sum Up Scores: Add all the weighted scores to get an overall financial health score.

Remember, the weights you assign should reflect your personal financial situation and priorities. It’s also beneficial to review and adjust these weights annually or when there’s a significant change in your financial circumstances.