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Financial fitness is when your finances are healthy and you are fully aware of the same. No matter where you are in your financial planning journey, you can be financially fit as long as you know the path and you are on your journey. Just as physical fitness cannot be achieved overnight, financial fitness also takes time. You need to have complete control of your income, savings, investments, financial goals, budget as well as taxes along with improving your overall knowledge of all the asset classes in which you have invested. A combination of all these is a cocktail called Financial Fitness.

There are multiple reasons why you must be financially fit which include fulfilment of your short, medium as well as long-term goals. It helps you plan for the rainy day as well as large and planned expenses for any special occasion. Financial fitness does not mean you need to be completely frugal, but you need to have 100% control over your budget, savings as well as investing according to your financial goals.

Financial fitness v/s financial independence:

In fact, financial fitness is a step towards financial independence. Financial independence is when you do not have to worry about your income anymore. The investments and your savings would generate inflation-proof returns to take care of your daily household expenses and you can choose to retire early and focus on your hobby or passion. This is a movement that was started as F.I.R.E. (Financial Independence and Retire Early). Click here to read more about F.I.R.E.

Here we have a quick set of 15-questions which will help you understand how financially fit you are.

Score yourself 1 for every a, 2 for every b, 3 for every c and 4 for every d. 

Do you have a proper monthly budget for your family?

a.Yes, we have a proper calculated monthly budget which we follow

b.I know where our money goes, but I do not have a proper laid-down budget

c.I intend to have a budget but haven’t been able to create one yet

d.I have no clue where and how we spend the money.

How would you describe your monthly household expenses?

a.Completely under control. I have enough and more to work towards my investment goals after the monthly expenses

b.Somewhat manageable. I am able to take care of my savings and my monthly expenses but need improvement in terms of planning it better

c.I do meet my expenses but am always in a hand-to-mouth situation towards the end of the month.

d.I always run short of money towards the month-end and eagerly wait for my payday.

Do you revolve your credit card balance?

a.Never, I always pay on time. And earn rewards as well

b.I don’t use credit cards. They are a complete waste of time!

c.I mostly pay on time but if I miss, the late payment and other charges pinch me a lot. Sometimes I opt for the EMI option to bail myself

d.Oh gosh.. wish I could pay my entire credit card back on time. But I always end up paying the credit card company oodles of interest and fines.

What is the situation of your emergency fund?

a.I can last for 6 months or more

b. I can last for about 2-3 months of complete dry spell, but with a hope of income post that

c.I do have some emergency funds but that is primarily for unplanned or medical emergencies.

d.Wait, what? Emergency fund? I thought that’s what credit cards are for!

What is your credit score?

a.Over 720: Excellent!

b.Between 690-719: Good credit.

c.Between 630-689: Fair, or average, credit.

d.< 630 or I have no idea what my credit score is.

Are you aware of your financial goals?

a.Yes totally. It's penned down as well

b. I am mostly aware but it’s not written down anywhere

c. I kind of know what you are asking, but haven’t really thought about it

d. What exactly is a financial goal?

Do you have adequate Term Insurance coverage?

a.Yes, I am completely covered to take care of my family.

b.I have life insurance but not adequate for my family

c. I clearly don’t know exactly how much coverage is needed for my family

d. Why exactly do you need term insurance?

What is your debt-to-income ratio?

a.< 36% as recommended

b.>= 36% - too high!

c.I have no clue.

d.What exactly is a debt-to-income ratio?

Are your monthly expenses (like telephone, wifi, electricity, gas, etc.) automated?

a.Yes, on my credit/debit card or bank account

b. Mostly yes, but some I still need to add to the biller

c. I wish life was that simple. But no, it’s not for now

d. I don’t believe in automation. I need to check and pay my bills

What is your retirement readiness?

a.I am on track to retire by the age 55-60

b.I am aware of my post-retirement expenses but do not plan to retire ever

c. I know my post-retirement expenses would be high and I intend to start planning but haven’t been able to yet

d. I have no plans whatsoever. Don’t think I can ever retire or stop earning.

Who helps you in your financial decisions?

a.I do it myself

b. I do it myself in consultation with my spouse/ parent/ friend/ brother

c.I have a relationship manager but I need to understand a lot of things from him/her

d. I don’t participate in financial decisions. My spouse/ parent/ friend/ sibling does it for me.

Are you completely aware of your spouse/ parent’s finances?

a.Yes, we invest together as a family with common financial goals

b. Yes, am aware but I am not privy to that information yet. He/She likes to keep it discreet

c. I mostly know where he/she has invested but am not completely sure

d. I have no clue if he/she invests at all!

Is your nominee aware of your financial situation?

a.Yes, he/she is 100% aware and knows how to file a claim or redeem/ withdraw the money in my absence completely on his own

b. Yes, he/she is aware that he/she is my nominee but nothing more.

c.He/She is not even aware of my investments

d. Wait, nominee? What’s that?

Do you know your current net worth?

a.Yes, I am completely aware of my net worth

b. I have an idea but do not know the exact value

c. I know my assets and liabilities but what else is needed to calculate your net worth?

d.I am not rich enough to even think of calculating my net worth.. so no, I have no clue!

Do you have adequate health insurance? 

a.Yes, I am completely covered. Indemnity health plan + Super Top Up

b.I am covered but plan to enhance it as expenses have gone up

c. I do have a group health plan but haven’t taken an individual one yet

d. I am not covered at all. I will take it when I grow older as I don’t need it now!

Term Insurance thumb rule = Current Annual Income X Number of years left for retirement.
So, if you are 35 years old with 25 years left in retirement and a current annual income of Rs 20 lakhs, then your Term Insurance requirement = 20 X 25 = Rs 5 CR.

Adequate Health Insurance Coverage thumb rule= 50% of your annual income + the last 3 years’ hospitalisation expenses

So, if you are 35 years old with a current annual income of Rs 20 lakhs and Rs 5 lakhs as your last 3 years’ hospitalisation expenses, then your Health Insurance requirement = 0.5 X 20 + 5 = 10 + 5 = Rs 15 lakhs minimum.

Now that you have scored yourself, make a total of all the points you have given. And check the results: