Let's start with the very basics of the matter…
Simply put, it is a check of your financial health. Financial health covers a lot of things like how much savings you have and how far that is towards your long term goals like retirement savings. It includes your credit score as well.
When was the last time you started a diet or an exercise regimen? At the very start, you probably measured your weight for having a yardstick, right? Personal finance assessment is similar. You need to have regular check-ins to make sure that you are reaching your goals and that you are well on your way to save for retirement.
Experts say that assessing your finances before making big financial decisions like taking out a mortgage and getting married can save your life. Ideally, you should be assessing once a year. Let’s face it. Times, and your needs change. And that means your income and expenses change as well. At times like these, and during times of taking big financial decisions, you need to find out the current position of your personal finances.
Maybe you are just going on a day-to-day basis and managing your short term needs. That is fine, but you still need to be prepared for more.
Here are a few ways to do this.
1. Retirement savings: Check your monthly contributions. Take full advantage of your company’s PF match, if it has one.
2. Meeting debts: Tackle your debts head on. There are debates on which debts to tackle first: ones with the most interest or one with the least interest. Pick one that suits you the best.
3. Budget based on income: Choose the 50/30/20 budget which says put 50% of income on necessities, 30% on meeting wants, and 20% on contributing to savings and debt repayments.
4. Building an emergency fund: At a bare minimum, you should have 6 to three months of savings for meeting any emergency.
5. Having a good credit score: Check your credit score regularly. The healthier it is, the more likely you are to get loans.
6. Insurance: Check that you have minimum coverage to protect yourself against loss.