You can change your financial health in year 2022

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Our financial health defines the way we live. At any given time, financial health matters 60% of our living. Whatever be the situation, we can always change it to our favour. In this New Year you can definitely change your financial health, if you follow the steps given below.

#1 Find out where do you stand

It is very important to know where we stand financially as on date to make an improvement. This can be done by looking at two aspects.

  • Income versus expenditure

First and foremost at the beginning of the year, understand your income. It may be permanent, temporary, flat or growing year on year, single source, multiple source etc.

Second understand your expense pattern. You may be just meeting your household need or you may be extravagant in spending impulsively, or you may be very disciplined.

Now subtract monthly expenses from monthly income. There should always be a surplus. This surplus should be atleast 10% of your income.

If there is no surplus, then it is time to examine your expenses. May be you are consuming household item beyond your needs. May be you doing impulsive purchase at supermarkets or malls. If you find any indication of it find ways to minimize.

If there are no such unwanted expenses then either you have to relook at your lifestyle or opportunity to enhance income. The bottom-line is unless you have surplus income over expenses, possibility of improving financial health is difficult. The best way to create surplus is budgeting. You may read more about budgeting at

For any reason if you have deficit income over expenses, it is an urgent situation to sit down to make serious financial restructuring.

This is a pre-requisite to change your financial health.

  • Assets versus liabilities

After examining income and expenditure, next aspects to examine are your assets & liabilities.

Assets include car, jewelry, household valuable items, bank deposits, investment, house, land, yacht, commercial vehicle etc. In other words whatever you own.

Liabilities include loans and debts, financial promises and commitments. In other word, whatever you owe.

At any given point of time, Assets minus liabilities should always be positive. If it is negative, then it means you owe more than you own. It is not a healthy situation. You have to make serious effort to reduce liabilities or increase assets.

Asset minus liabilities is also known as networth. Positive and higher networth indicates a better financial health.

#2 Set your financial goals

Once you have understood your current financial health, take necessary steps to correct the shortcomings. It may be deficit in income or negative networth. After that to change your financial health for better set financial goals.

Financial goals could be saving money for buying house, children education, retirement, vacation, car etc. Estimate the fund that will be required to fulfill each of the goals. The process may slightly be cumbersome. Therefore take help of an expert in personal finance.

Take into account the investments you have already made. If the existing investment is going to meet the requirement of fund for each of the financial goals, you are on the right track. Continue these investments. If not, you have to make additional investment from the surplus income.

#3 Assets allocation

All financial products do not give equal return. Depending upon your age, risk appetite you have to choose financial products for making investments to meet your financial goals. It could be fixed deposit, recurring deposit, mutual fund, equity, real estate, gold etc.

If your goal is long term then make investment in equity or mutual fund.

However, equity is a high risk asset class though return also high. It is advisable to have your risk appetite assessed before your make investment in equity. If your risk is high or moderate, then you can go ahead invest in equity. Otherwise stay away from equity.

Though mutual funds also bear risk, it is manageable and varies from scheme to scheme. You can ready more about mutual fund at

If your goal is short term where fund is required within coming 3 years, then go for fixed deposit, recurring deposit or debt mutual fund.

Any new investor in these asset classes must take help of genuine experts or professionals.

#4 Mitigate risk

Avoid untimely withdrawal of investment at the time emergency or unfortunate event. However, life is dynamic and situations change frequently. Therefore, create an emergency fund, which you can use in emergency needs like death, accident, job loss etc. Its value should be equivalent to 6 (six) months household expense.

Subscribe to a medical insurance to meet medical expenses. if arise. It should cover all members of the family with adequate coverage limit considering current medical cost.

The main bread earner of the family should have a term insurance. In case of his or her unfortunate death, the family or dependent will get the required money to carry on their life. The value of coverage should be 10 (ten) times of his or her annual income.

It is also a good idea to have insurance for other household items.

#5 Review

Once you have finalized the goals and carried out the allocation, review your financial health every year. Preferably every 6 months. The review is important from 3 (three) perspectives.

One, the return on different assets varies from time to time depending upon market condition. Accordingly it may require reallocation of resource to different schemes or asset class to maintain the same return.

Secondly, there could be some change in life situation for which income, expenditure and investment could undergo change. In that case, it may require to reset goals and investments to be aligned to it.

Thirdly, there could be additional income inflow and investment requirement.

If anyone follows the above process diligently, his or her financial health can dramatically improve. It may be difficult initially but definitely possible. All you need is a strong desire to get out of that financial stress, if you have.

Let me know your thoughts in comments.

Note: If you genuinely need hand holding in this process, let me know. We will do it for free. We have tools for risk assessment, income-expense calculation, networth calculation etc.

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