Everyone has both short-term and long-term goals in their life. To fulfil them, one needs to be financially strong, i.e., have enough savings to meet your goals. Just like having good physical health is important to you, having good financial health is equally important. This can only happen when you get your finances straight by making a regular habit of saving and investing as much as possible every month. Because your future depends on today’s savings. In simple words, the stronger your financial strength, the better would be your future. 

Now, the big question here is how aware you are of your current financial condition and if you are managing your finances well every month. Also, it is important to know the areas in which you are lagging. Do you know how financially strong you are? When was the last time you checked your financial strength? Well, there are a series of similar questions that you need to ask yourself before you go ahead with planning your finances. Running a financial check every quarter or semi-annually can put you on the top of your financial game. These checks also aid you to be aware of the available finances in hand and the debts that need to be addressed first. 

Since you have understood the basics of financial strength, let’s understand its meaning, factors, and ways to improve it. In this blog, you’ll also come across the most important financial tool that’ll aid you to determine and compute your financial strength so stay tuned till the end.

Meaning of Financial Strength

A person who saves a particular amount every month from their income, doesn’t have an excessive debt to take care of, invests in suitable financial avenues, and has insurance cover, can be said to be financially strong. There are some signs that can lead to the downfall of your financial strength:

•  More debt in hand to clear than savings.
•  Don’t have funds in the emergency fund to meet the urgent needs.
•  Unnecessary credit card purchases and interest payments.
•  Lack of cash flow every month to meet your needs.
•  Investing without any forethought or knowledge.

One best way to plan your next move is through budgeting. That’s because people can understand their spending made and the amount left or can be saved after meeting all the expenses. Moreover, budgeting also gives you a clear idea of your debts and unnecessary expenses made during the month. It tells whether your financial strength is good or bad. There are several financial rules that can aid you in building your financial health. For instance, the 70-30 budgeting rule. According to this rule, a person should only spend 70% of the income to meet their monthly expenses, and the rest goes into savings. In this way, you can save proportionately every month.

There’s another budgeting rule called the 50-30-20 method. The allocation here’s straightforward as well. As per this rule, 50% of the income goes into monthly needs, 30% gets allocated for basic wants, and finally, the rest 20% goes into savings. Through this rule, you can save proportionately as well.  In case, if you have any debts, you can use the 20% amount to clear them on a timely basis to enhance your financial strength.

While knowing what financial strength means is good, it is also important to know what constitutes your financial strength.

Factors That Tell You About Your Financial Strength

It’s always important to keep a tab of your finances and take a tour of your portfolio before you go for any sort of huge spending. Assess your assets and liabilities, monthly income, and investments to know your financial strength and where you stand with your finances. From this assessment, you’ll get to know whether your financial strength is favourable or not. If you are on the positive side with respect to your finances, then there isn’t any problem. If you are on the other side of the shore, then you have a problem. But fret not.

The following are the multiple factors that define your financial strength. Like, if your expenses and savings are in check, whether you are investing properly, and whether you have insurance coverage. All these factors cumulatively showcase your financial strength in the real world. Let’s talk about each of them in detail.

• Expenses: Expenses need to be kept in check. You need to know how much of your monthly income you are spending each month. And if you are spending more than you should be, you should change your habits right away. 

• Savings: Next is saving or investing. From your monthly income, you should invest a particular amount every month in the investment avenue of your choice and suitability. With an increase in your income, the amount you invest should also go up proportionately if not more. 

• Insurance: While a lot of people still think that insurance is a waste of money, most of them are unaware that it’s one of the factors that’s protecting you from futuristic losses. It not only secures you from all sorts of perils that may cost you a fortune upon the occurrence of any unforeseen event but also provides timely financial support.

• Emergency Fund: If life throws you curveballs, you should be in a situation to tackle them. This is only possible when you set aside a portion of your monthly income into an emergency fund. 

Just like you use insurance post-emergency, you use an emergency fund for the same purpose. It acts as a rescuer at the time of an unprecedented situation.

How Can You Improve it?

Before we dive into the ways of enhancing your financial strength, let’s understand a tool called FIST that is available on the Freecharge app. FIST or the Financial Strength tool tells you how financially strong you are by assessing your income, expenses, investments, etc. The tool considers five key aspects while computing your financial strength score: monthly income, expenses, savings, loans, and insurance cover (both health and term life). 

Based on the provided financial information, the FIST tool lets you know your strong and weak areas in your profile accordingly. Using this key information, you can compare your financial performance for the last few months with the current month and see where you stand. You’ll get to see a bigger picture of your finances with the aid of the FIST tool. The computation of your Financial Strength using FIST is straightforward and effortless. 

The tool also suggests the financial limit for each category. For instance, Krishna’s monthly expenses are touching 50% but the tool suggested trimming the expenses by 10%, i.e., not extending the expenses limit beyond 40%. Likewise, this goes the same for all other categories in the list. Using the FIST tool on the Freecharge app can be helpful in understanding your financial strength and knowing which areas need your attention. Once you know your score and insights into your financial standing, you can use the information to plan and better your finances. Let’s understand how. 

Using the FIST tool to improve your financial strength: 

If your expenses cross beyond a certain limit, the tool alerts how much percentage you need to cut. Also, FIST keeps you one step ahead in planning your expenses. Once you know your expenses, you’ll get a clear idea of how much you can save every month. The lower the expenses, the higher will be the savings, and vice-versa.

• Disciplined Saving and Investing: Every individual has both short-term and long-term goals in their life, and to fulfill them, you need enough corpus in hand. This can only happen when you follow “Disciplined Saving and Investing”. Now, how to know whether you are saving the right amount as per your income levels? Well, that’s when the FIST tool comes into play. 

If your savings are less, the tool suggests the necessary savings percentage you need to maintain hereafter to meet your goal. SIP or Systematic Investment Plan is the next best way to create discipline concerning your savings and investing. You can go for a SIP investment directly from the Freecharge app. 

• Save for the unforeseen: FIST tool analyzes your financial information and generates the desired amount you need to maintain with you as a part of the emergency fund to meet unforeseen situations in the future. Doing so aids you to prepare for the uncertainties in your life.

• Get Yourself Insured: Insurance is an important aspect of your financial stability as it protects you from using your savings or investments during medical emergencies and provides your family a cushion in case you are not around. The cover values differ from one person to another as per their income levels. You can know the total cover value you need to invest by putting your financial information in the FIST tool.

So do check out this amazing tool on the Freecharge app and start by knowing your financial strength and making small but important changes to be in total control of your finances.