Your financial health

Dipankar Jakharia *

Had there been no demonetisation, we would have started discussing how to save income tax by now. But one cannot argue that demonetisation has marred all other discussions or debates, and rightfully so. But since we are at the trail-end of the process, I think it is time to discuss something else.

This is the time of the year when you wind up the year and become ready to welcome another year. This is the time you should go for your yearly financial health check-up and understand where you stand, financially.

The first process of your financial health analysis is to ask few basic questions. You need to ask these questions to yourself and try to answer it one at a time. I advise you to write it down, since writing is nothing but a process of refined thinking.

o Am I adequately insured? To simplify it, ask yourself: in my absence, will my family survive immediate, short-term and long-term consequences, financially? Recently, I’ve seen a trend of buying a term insurance of rupees one crore without much thought.

I’ve said it before, over insurance is as bad as under insurance. Evaluate your need and insure accordingly.

o Have I discussed with my spouse or nominee where to invest the amount received from the insurance, if and when I am not around? It is better to write it down along with your will, where to invest the lump-sum amount to take care of your responsibilities, and for a steady flow of income for your family. It is also a smart move to introduce your financial adviser to your spouse or/and nominee to take care of things in your absence.

o Ask yourself, am I medically insured adequately along with my family, independently of my employment? It is now a common practice of buying independent medical insurance, up and above the employer given health insurance. With escalating medical costs, each family should re-evaluate their health insurance every year and the year-end maybe the best time to do so.

o Again ask, am I ready for any emergency? It is advised to keep three to six months of your earning into an emergency fund for any unseen eventualities. You can keep half of your emergency fund into a liquid fund and other half in form of cash in your house. Although we are heading for a cashless society, in extreme emergency, cash is king. Imagine, if you have to rush to a hospital at two in the morning, will you like to run to an ATM or your neighbour?

o Ask yourself, do I have liquidity in my portfolio? Apart from your emergency fund, do you have liquidity for any short-term need? Recheck how much money you are putting in EMIs and SIPs. If you are either putting everything into investment through SIP, and paying loans through EMIs, then you need to rebalance your finance for any short-term needs. You don’t want to break your SIP investments to paint your house or taking a foreign trip, do you?

o Do you know your net-worth? By evaluating your net-worth, you will be in a better position to adjust your goals in a much better and practical way. Your net-worth is the sum equal of all your assets and investments, minus all your liabilities. Please note that the house you live is not counted in your assets but as a liability. This is because you need one house to live. Any other property should be listed in your assets.

o Have I done my retirement plan yet? Remember, from the assets that you have made from your working years, you have to survive 20 to 40 years, depending on your longevity.

Above all financial planning, this is the most important bit to ponder over. Out here you should take professional help, preferably from a certified financial planner.