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5 must-haves on your financial checklist to know you are doing okay

Monika Halan
posted on 13th August 2018
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Monika, am I doing OK? This is possibly the question I am asked most. When you ask “Am I doing ok?”, you are looking for validation for what you are doing, and a course correction if you are not. I can think of at least five ticks that you need in your money box’s financial checklist to say, “Yes, you’re doing ok!”

Monika Halan in conversation with HerStory.

Spend less than you earn

One, you must spend less than what you earn. It may sound basic, but there are plenty of millennials who are unable to stop spending on lifestyle and run up credit bills that they know their parents will step in to pay. Borrowing to fund current spends is a sure way to lose friends and not influence people.

How does your cash flow?

Two, you must have a cash flow system that separates out your spending from your saving. I like to use a three-bank account system. My salary account is labelled ‘Income Account’. A second account, into which my month’s spending money flows, is called my ‘Spend It Account’. A third account is called my ‘Invest It Account’. As soon as the salary comes in, part of it moves to the Spend It account and the rest moves to the Invest It account. Moneybox hygiene is based on this simple step.

Danger signals

Three – you must have an emergency fund that will keep you going for six months without a paycheck. We keep a lot of our money in a savings deposit waiting for disaster to strike. The fear of not having ready-to-use money keeps us from making our money work hard for us. Calculate what you spend each month, including rent or EMI and all other regular expenses. Multiply by six, and that’s the number you need to have in either a fixed deposit or an ultra short-term debt fund.

Cover it up

What’s number four? Say you have a good medical and life cover. The medical cover should be other than your office cover. The life cover should be a pure term that is at least 7-10 times your annual income. If your salary is Rs 10 lakh a year, you need Rs 1 crore in a life cover. Buy a cheap term plan and lock in your premium at a young age.

Funds are cool

Number five – you are likely no longer investing in gold and real estate for your long-term wealth creation, but are using equity mutual funds. Equity funds reduce the risk that direct stocks bring to you. This is the cheapest way to target above-inflation returns over the long term.

So, after keeping this five basics in mind, are you doing ok? If not, Let’s Talk Money!

Monika Halan is Consulting Editor with Mint, India’s second-largest business daily, and the author of ‘Let’s Talk Money’, a DIY book on personal finance.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)

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