When Should You Start Assessing Your Finances?
Last Updated : May 13, 2022, 1:17 p.m.
Knowing where you stand financially at different times is paramount for a healthy financial life. You might have taken a sound financial decision in the beginning, but there’s no ruling out the villains appearing in your life and making it challenging for you. So, keep your eyes open all the time to thwart the financial challenges, which can be regarding a loan, investment or even insurance. Should the situation call for a course correction, don’t hesitate to do so. But in case you are not that financially aware, you need to first know the situations that call for assessments. We’ll tell you the same. Let’s begin!
These are Times That Call for Reviewing Your Finances
Financial stability is indicated by having more income and less debt. But many have it exactly the opposite and face financial issues as a result. Besides, if investments have dipped for more than a couple of years, take charge of the same before it gets too late for you! Another important aspect is insurance cover, which if remains on the lower side, will make you and your family members only feel financially insecure. Let’s assess all these situations.
When Debt Remains Too High in Proportion to Your Income
Ideally, the Equated Monthly Installments (EMIs) must not constitute more than 30% of your income. The permissible limit can go up to 50-60% if you earn around INR 75,000 per month. But in that case, you may not be able to meet a sudden rise in expenses, which can be anyone’s case given the times we’re in. Saving more and spending less when times are RIGHT can help you when they are NOT. Look to eliminate unnecessary expenses that you may be doing to create space for more savings.
When Your Credit Card Debt Reaches Alarming Levels
The privilege to shop for anything and everything sometimes leads people to a merciless credit card debt trap that they may not have imagined before. An excruciating interest rate of 30-45% per annum awaits you if you have revolved your credit by paying the dues partially. Don’t let the situation aggravate further by paying all ASAP. You can use your savings to clear the credit card debt. In case you haven’t saved enough, get some recent transactions converted into EMIs. Banks typically allow transactions not older than 30-60 days for EMI conversion at an interest rate of 12-16% per annum. For the remaining amount, you can take a personal loan at a lower interest rate of 10-18% per annum.
When the Value of Your Investments Keeps Sliding Year after Year
There’s no doubt that investments can have their share of ups and downs, given how markets behave at different times. One needs to be patient too amid all these if they want to achieve their goal corpus. But if your investments, be it in stocks or mutual funds, have been witnessing lows for more than 2-3 years, you better evaluate the performance seriously.
Yes, poor market sentiments take a toll on your investments, but some stocks and mutual funds flourish even then. What’s more, compare the performance of your stocks or mutual funds with that of their benchmarks, which can be either BSE Sensex, NSE Nifty or their various sub-categories. If your investments come shorter in that regard, you need to shift the same to the ones that must have performed better than not only yours but even their marked benchmarks.
If You’ve Chosen a Very Less Life Insurance Cover
You won’t like to see your hard-earned savings & investments getting consumed by your family members after your death. Instead, you would like to protect the same for some other goals of theirs. A life insurance cover is what people need to protect their dear ones financially after their deaths. But the cover comes with a certain premium amount that you need to pay for a smooth disbursal in case you die during the policy term.
However, some choose a very less sum assured (life insurance cover) to get their premiums reduced substantially. Such a step would only put your family on the backfoot as inflation will make that cover amount highly redundant.
For instance, a term insurance plan with an annual premium of INR 5,000 having a sum assured of INR 25 lakh would prove less useful than a plan with a premium of INR 15,000 annually and giving you a cover of INR 1 crore. You can thus budget your monthly expenses accordingly and ensure that INR 15,000 payment annually.
Look at the larger picture rather than harming yourself with a short-sighted financial approach.