To add wings to your dreams you need to be financially robust. Being financially healthy is not limited to having a lot of hard cash in your bank account or having a recurring source of monthly income. Your financial health basically defines the overall dimension of your personal financial health. It includes solidarity of what you earn today, how much you save and your ability to draw loans for future.
As important it is to have a stable source of income in your life as is your readiness to face the unforeseen circumstances. From medical, to social, to personal, there could be several types of emergencies in life that can hinder your financial growth. To name a few, medical illness or a fractured leg bone, divorce, unemployment are a few occurrences that could hinder the pace of financial growth in your life.
No one plans for such unlikely or unhappy events in life. However by closing your eyes in the rain doesn’t save you from getting drenched. You should thus always take a good care of your financial health and stay ready for systematic financial aids such as personal loans for emergencies.
Let’s find out 3 clear ways of assessing your financial health:
- Credit Score
A Credit score is basically a score of your financial report card. The better is your credit score, the better is your credit worth. Credit score by CIBIl which is the first major credit bureau of India, is measured between 300 to 900 points. The closer you are to 900 mark, the better is your score. According to CIBIL approximately 80 % of loans are processed to those who have score above 750 points.
Your credit history primarily affects the score. Factors such as your past credit history of debt repayments, the length of your loans and credit cards, the mix of debts, use of credit limit and your recent loan queries basically affect the score. With a good credit score, lenders consider you as a credit worthy person and are keen to lend money.
Certainly a person who is more likely to raise loan without a hassle is considered more financially healthy than the one who has a low CIBIL score and needs a guarantor for the same task. Your credit score thus plays a crucial role in reflecting your credit health.
- Debt to income ratio
Another determinant of your credit health is your debt to income ratio. Ideally it is considered that you should not use more than 30 % of your income in repaying the EMIs and credit card bills. For, it is considered that approximately 50% of your income would be used on your basic and personal expenses. Ideally a person should also contribute towards the savings (including insurance) for retirement. However when you use more than 30 % on debts, it affects your savings and running expenses. This also indicates that owing to more financial obligations to meet every month your financial health is compromised. You are not able to save for your future and an unforeseen event may disrupt your financial health.
- Credit cards
In this age of plastic money, one of the key indicators of a person’s financial health is the way s/he uses cards. The high balance on credit cards is indicator of high credit appetite. And when you are unable to repay the balance and roll it over to next month, it not only attracts a late payment charge it also indicates shortage of paying for your financial obligations. This hurts your credit score and reflects bad credit health.
The best way to keep a check on credit card balance is to use a debit card instead. Every use of a debit card would remind you of the expenses being incurred and help keep a check on how much you are spending. Likewise, those who own too many credit cards and keep balance on each card are considered financially weak people.All in all, how you use your funds today directly affects your credit worth. Right from your monthly income, to your savings, to insurance plan, loans and credit cards all define the state of your financial health. Simply by pulling out your free credit report you can have a direct access to your financial activities and analyze how you are performing today for a healthy tomorrow.