Are You Paying Attention To Your Financial Fitness?
May 30, 2019

Author: Divya Grover

(Image source: freepik.com)

It's summer time and you're probably off on vacation with your loved ones. You may have carefully planned the dates, ticket/hotel bookings, places to visit, and so on.

But did you actually plan the financial aspect of the vacation, or did you spend all your savings?

If you've spent all your savings, then you show symptoms of bad financial health.

What will you do if there is need to fulfil another financial obligation?

Financial illness may not show any signs until it's too late.

[Read: 6 Symptoms Of Bad Financial Health]

This brings us to the importance of financial well-being. But what does it mean to have sound financial health?

Many of us are in the habit of saving, but not so much of investing. Just saving is not enough; the amount has to be invested in avenues that will appreciate your wealth. Without investments, your savings will deteriorate in value due to inflation. Thus, saving and investing contributes to your financial well-being.

Before you start investing, determine the amount you will be able to save every month. Ace investor Warren Buffet once rightly said, "Don't save what is left after spending, but spend what is left after savings".

The habit of saving will be inculcated when you create a budget for your daily necessary expenses as well for entertainment and other luxuries. Budgeting will also help you cut expenses wherever possible and you will end up saving more.

Now that you have saved up a decent amount, you can begin investing it. To make your money grow through investments over a period of time, you need to park it in wealth creating and inflation-beating avenues like mutual funds. Investing in mutual funds has many advantages like liquidity, diversification, systematic investment, and many more.

[Read: 4 Things That Will Boost Your Financial Health]

You can start investing as little as Rs 500, if you invest through the Systematic investment plan (SIP) mode of mutual funds. Instead of investing lump sum, you can invest a fixed amount regularly through SIP. The many benefits of investing through the SIP route include cost averaging, compounding of wealth, and a disciplined approach towards investments.

However, keep in mind that your investments should align with your financial goals and must be based upon your risk appetite and the time horizon of the goal. Without setting goals, you will not be able to gauge the progress of your investments over time. Risk profiling is another vital aspect, so that suitable assets can be allocated to your portfolio.

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The goals that you set must be S.M.A.R.T. i.e.

  • Smart,

  • Measurable,

  • Adaptable,

  • Realistic and

  • Time-bound.

It may include short to medium-term goals such as buying a vehicle, international vacation, house renovation, among others; while long-term goals could include your retirement, children's education/marriage, and so on.

[Read: Are Mutual Funds An Answer To All Your Financial Goals?]

Just like you need to have balanced diet for a healthy living, your investments should also have a balanced mix of assets like equity, debt, and gold. The asset allocation will depend on your risk profile and the time horizon of the goal.

For example, if you are willing to take an aggressive approach to investment to earn higher returns, your asset should have a higher allocation towards equity funds and lower towards debt funds. As you approach closer to your goal, you can gradually reduce the equity allocation and increase the allocation towards debt.

You can further diversify your investment under each asset class to provide stability to your portfolio.

[Read: Is Over Diversification Good For Your Mutual Fund Portfolio? Know Here]

It is important that you start investing when you are young so that your money has enough time to grow big and give you meaningful returns. The later you start investing, lower the corpus you will have for your goals which will affect your financial health.

Another factor that negatively affects your financial health is depending on loans to fulfil your goals. Loans come at high cost and can disrupt your budget. If you plan properly for each financial goal, you will be saved from the trouble of taking loans.

You should also be prepared for any uncertainty that life may throw at you, like job loss and medical emergencies which may impact your earnings. Prepare for this by setting up a contingency fund. Ideally, you should accumulate 12-24 months' worth of expenses in a contingency fund. So make sure you've accurately accounted for all expenses and set the right-size budget.

Additionally, the funds saved for contingency could be invested in safe and liquid assets like liquid/overnight funds, short-term debt funds, and bank deposits.

You should also get yourself adequately insured for life and health to secure your family's financial future.

One last thing that will complete your financial health program is tax planning. If you plan for it, you will avoid ad hoc, hasty investment decisions and enhance your financial well-being. Tax-planning helps you minimise the tax on your hard-earned money. Many investment options entitle you for deduction under various sections of the Income Tax Act. You get the dual benefit of tax-saving and growing your wealth through investments.

Some mutual fund schemes like Equity-linked saving scheme (ELSS) come with tax benefits. The schemes primarily invest in equity instruments and have a lock-in period of three years. Thus, the equity component will enable capital appreciation, while the tax benefits will help in efficient tax planning.

Mutual funds has the solution for each step required for your financial well-being right from deciding how much to save, where and how to invest, and how to allocate and diversify your assets. With mutual funds, you can design and build a portfolio as per you requirement and easily track its performance. It can help you to achieve your goals systematically and conveniently.

It is important that you select the right mutual fund suitable for your needs and stay invested for long-term to be able to sail through short-term fluctuations and get the maximum benefit.

A regular check-up is needed to assess the health of your mutual fund portfolio, i.e. you need to review and track the performance of your portfolio. If the schemes in the portfolio are consistently underperforming over different market phases as compared to the benchmark and its peers, then you may need to make changes in your portfolio.

If you take this approach towards your investments, you will always remain financially healthy.

Editor's note: Have you secured your Family's Financial Future?

If Not, PersonalFN can assist you to plan your life goals like:

Children's Education

Child's Marriage

Dream House

Retirement

For your dreams to convert into reality, there's no other alternative to effective planning. Click Here to Schedule a Call with our Investment Advisor!


​Happy investing!



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