Steps to Achieve Financial Fitness

Most of us have heard the importance of being financially fit and stable, but what makes financial fitness so crucial? Just the way we emphasize our physical health and look after it to ensure we are on the right track it is equally important to be financially fit and stable in life. Whenever we are sick we visit the doctor. The doctor identifies the root cause of sickness and prescribes medications to fight the causative agent and make you healthy and fit. Similarly, when people suffer from financial problems it is advisable they should consult a financial advisor who can identify the root cause of the problem and help the sufferer to move towards financial fitness.

This article focuses on money management in UAE to help struggling individuals with their finances that will eventually lead them towards a financially fit and secure future.

Understanding your assets and liabilities

Net worth of an individual is defined as the total value of your assets minus the total value of your liabilities or debts. Assets might include gold, cash, stocks, bonds, mutual funds, real estate, etc. Liabilities include loans, debts, mortgage, student loans, overdrafts, utility bills credit card bills, etc. To achieve financial fitness the first step is to assess your net worth by adding all your assets and subtracting all liabilities from it. Very often students who have recently graduated from college have a negative net worth due to outstanding student loans, which is not something you should worry about. It just means that you need to work a bit hard to get that above the positive line.

Identify and Chase your Goals

Financial fitness may be defined as the state of being financially capable and secure to efficiently manage expenses and save periodically to build a corpus. The primary objective behind achieving financial fitness is to accomplish financial goals in life with an accelerated pace and with more ease. Individuals should look upon their immediate, short-term and long-term goals and how much do they cost? And are investors on the right track to achieve them? Long term goals might include saving for a peaceful retirement, child’s education or marriage, buying a house, similarly, short term goals might include making timely repayments of your credit bills buying a new car, etc.

Check Your Credit Rating

Credit score or credit rating is a reflection of your financial fitness it denotes the status of repayment history and credit accounts. In order to achieve financial fitness, it is extremely vital to build a good credit score. Banks and financial institutions approve Personal loans and credit cards on the basis of your credit rating in the country.

Name your Nominees

When you buy an insurance plan or open a retirement account the application process requires you to name nominees i.e. person/s that would collect the death benefit in case of the demise of the policyholder. By default the primary nominee or beneficiary is your spouse and children can be made voluntary nominees. Naming and acknowledging your nominees officially on paper reduces hassle at the time of claim and offers financial cushioning to your family in case of any unfortunate event.

Check the alignment of your goals and investment plans

An important factor that is vital in money management in UAE is making sure that your goals are aligned the right way with your investment vehicle. This can be understood easily by an exemplary situation. Suppose you have a SIP plan that costs you AED 500 monthly and offers a rate of interest (ROI) of 8% annually. While purchasing this SIP the objective was to accumulate enough capital after 3 years to buy a new car. If your SIP is providing expected returns or better than expected then it is aligned correctly with your goals because after 3 years you’ll be able to achieve your desired goal. However, if the plan is underperforming you can make amendments or withdraw from the plan to invest in a plan that is aligned with your goals.

Get the Right Insurance Plan

A good insurance plan that offers extensive coverage against potential risks is an integral part of being financially fit. For your house and belongings, your policy should offer cover equal or above the amount that is the cost to build the house. Insurance companies these days offer customized insurance plan online that are easy to buy. Interested customers can compare plans from different providers and choose the plan that fulfills all your needs at the lowest cost. Life insurance offers financial fitness and allows people to focus on their goals without worrying about financial security for their loved ones when they’re not present to look after them.

Conclusion

All of us have heard people saying “live in the present, forget the past” but our past teaches us to learn from our mistakes and work hard for a bright and secure future. Money management in UAE not only helps people to achieve financial fitness but it also offers peace of mind and reduces stress.