As established in the previous article one’s need to be financially healthy. Just as to be physically fit one needs to understand diet & exercise. So to be financially fit a thorough understanding of investments is required. How does one define Investments and its, application to sound financial health? In the current capitalist urban environment, having enough money to fulfill ones dreams is something very essential in life. All individuals have aspirations for a better lifestyle – a good car, a big house, good education for children, enough money for retirement. Besides all these, we need money for medical emergency, daughter’s marriage, future business venture, for taking care of daily expenses in old age after retirement. For all this to come to fruition, money must be invested practically and sensibly.
Every Indian family nuclear/non-nuclear sets aside a monthly budget for domestic/household expenses. In same way a budget needs to be set for one’s investment, & eventual wealth creation. This has been elaborated greatly by Robert Kiyosaki in his book “Rich Dad Poor Dad.” His mantra is” I pay myself first.” Deploying earnings, salary, profits, remuneration- money sensibly generate returns to secure future investments. The dictionary meaning of investment is
1. The investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.
2. A devoting, using, or giving of time, talent, emotional energy, etc., as for a purpose or to achieve something.
3. A thing invested in, as a business, a quantity of shares of stock, etc.
Today most investments are made in insurance ,PPF- provident fund, Shares & stocks, commonly called as equities/securities, NCD, Bonds, Company fixed deposits, Government securities, FMP-Fixed Maturity Plan, Farming land, Real Estate-flats, building, free hold plots. Precious metals like gold, silver and platinum, copper. For better understanding & sophisticated investor’s currency, crude, Natural gas. In India one can trade, invest & hedge in Agri Commodities. All the above investments are made in order to generate various income streams like interest- deposits, dividends- shares/stocks and capital appreciation from sell of real estate/commodity or income in profitable business venture.
This leads to a next logical question-What is financial health?
Financial health helps to meet the financial goals for current and future stage of their life and thus empowers an individual to financial freedom. A good financial health could also be for some a complete financial freedom- means never having to work for day to day survival, for others it may mean paying debts earlier or avoiding bankruptcy. Your overall financial health is comprised of many such elements. From learning how to live within a budget, to building good credit, controlling debt-karz and excess spending, developing short and long-term financial goals, and learning to invest. To establish this let us take quiz and you may be surprised to learn may thing about yourself in terms of finding how involved you are in your own& household financial activities.
Take the brief quiz below to get an idea of where you stand with your own financial health and pinpoint areas where you may need work on. Simply answer yes or no to the following questions, and keep track of your answers to determine your quiz results once completed. For every yes – 1 mark and for No- 0 marks.
1. I have kept my documents like insurance policies, investments, house deed, fixed deposit receipt, mutual fund papers and my family in order and safely.
2. I know the total value of my net worth–including my savings, investments, home, jewellery, land if any etc–updated on a quarterly basis?
3. I have written/noted list of my monthly fixed and other expense?
4. I always have a target limit in mind of what I can afford to spend on a daily basis, on personal shopping in malls, supermarket, grocery, drug store, take home lunch or dinner or general family dinning outside?
5. I have at least one utility registered in my name and at least one credit card under my name alone–not as a joint account.
6. I check my paying back ability with my family before every any major purchase, such as a car or home, festival shopping spree.
7. I have closed all credit card accounts that I do not regularly use. And i pay my credit card bills regularly.
8. I have consolidated the majority of my debt into just one or two payments a month with low interest rates.
9. I have at tied up least three to six months worth of living expenses-in FD saved in case of an emergency.
10. I have a percentage of my salary transferred to a long-term retirement or pension plan. (Either I do this myself or it is automatically deducted by my employer).
11.I have established three short-term financial goals, such as saving for a car, vacation, Electronic item, Diwali festival or designer Sari or suit.
12. I have established three long-term financial goals, such as saving for a down-payment on a home, investing for my child’s college education, or my retirement.
If 1-5 are true, then you are on track but need knowledge.
IF 5-9 are true, though on right track, you need to look into practical aspect of investment & a bit of tweaking with the help of professional advice.
If 8-11 are true then u are completely financially healthy, but may still need professional advice time to time and keep it up.!!
If all 12 right, u need not follow or read the article.
If none is true, then do not panic, but seek financial knowledge at the earliest. Run!!!!
A good strategy by itself does not ensure success. Success depends on how it is implemented!
Suchita Ambardekar, All rights reserved.
Financial Consultant and Technical Analyst