Assessing the Financial Fitness
Prof. S. Thilak, Assistant Professor, Dept. of MBA, Sankara College of Science and Commerce
Financial Planning and Financial Fitness
Financial Planning is a progress to take charge and manage the finance to ensure the financial well-being. It includes Managing cash-flow for the current needs and future goal for example purchasing an asset, managing exposure to uncertain situations during the loss of a dependent and Investment planning to meet financial goals like children’s education and retirement.
Financial Fitness is like Physical Fitness, a financial fitness assessment allows to have a better understanding of the financial health of a family. The following are the common personal financial problems that can affect the financial fitness.
- Failing to plan ahead, or not planning at all.
- Not spending within your means.
- Spending on borrowed money, buying with consumer credit.
- Delayed saving for Retirement.
- Falling prey to Financial sales grounds.
- Not doing your homework.
- Making impulsive decision.
- Exposing to High Financial Risk.
Identifying Immediate and Long-Term Financial Goals
There are few steps to identify the Immediate and long-term financial goals. The first step is to set the goals and priorities of the finance, and knowing about the resources that have to meet the future. The second step is to discover the financial fitness and plans to increase the financial status. The step three is to assess the financial situation of past, present and future and to also assess how to manage the resources. The step four is to develop a strong financial plan to reach goals and manage the resources. The step five is to implement the plan which was developed earlier and finally the last step is to Monitor and reviewing the strong financial plan.
Set S.M.A.R.T Financial Goals
SPECIFIC
Be specific and clear about what is one going to do and how they are going to do? For example, completely pay off your housing loan in 20 years or working out how much needed for each goal and think about how to reach that goal. When projecting future value consider the current prices and projected inflation, which means being specific with one goal or a greater number of goals.
MEASURABLES
Goals must be Measurable, so that it can be monitor the progress and action can be taken to find falling back. For example, if a person’s monthly income is Rs 3000/ and he/she is taking a renovation debt of Rs15000/ with a loan interest 5% and he/she have set aside 20% of monthly income to pay renovation debt monthly. The Measurable Outcome is that they can completely pay off renovation debt in 2years and three months. However if you are unable to set aside 20% of income each month, then you may have to look for other way to meet goals. One way to do is to cut back the expenses so that they can make more money to pay down their debts.
ATTAINABLE AND REALISTIC
Goals must be Attainable and Realistic, even if they require some control to stay with the plan. Devise a plan or a way of achieving the goals which makes it realistic. This goal needs to be realistic and achievable based on the current economic situation.
TIME
Goals must have time frame, set a timeframe for the goal by next week, next month or next year or in a decade. Putting to an end point as it gives a clear target to work towards it. If the Time is not set to your goal, commitment to achieve that goal will be weakened. This leads to postponement as there is a lack of urgency to work on it promptly.
Assessing the Financial Situation
Assessing Liquid Assets like Bank Statement, Current Accounts and Fixed Deposits. Investment Assets Brokerage Statements, CPF statements, respective institutions funds, insurance policies statement updates and recent real estate transaction prices. Personal Assets for example Car can be accessed from the Professional appraiser. Liabilities like mortgage, bank loan can be determined by a person’s Financial Statement.
SANKARA BLOG 