We all know than an annual health check-up is important in maintaining proper health and physical fitness. Well same holds true for your financial wealth and fiscal fitness. Regularly checking your financial pulse will help us to stay on track to achieve your financial goals.

This two simple exercise or examination will help you better understand fiscal fitness.

Looking for Symptoms.

The two examinations are the balance sheet (or net worth statement) and the cash flow statement.

To create a balance sheet, simply draw a line at the centre on a blank sheet of paper and name one column as “assets” and other as “liabilities”. Assets are everything you own and liabilities are everything you owe. Further regroup the assets in 3 categories:

• Cash/cash equivalents like SB A/c, RD’s, short term FD’s
• Investment Assets like stocks, bonds, mutual funds, real estate and gold savings schemes.
• Personal use assets like living house, car and any other assets meant for personal use.

Similarly classify liabilities as short term and long term.

• Short term is credit card due, personal loan, gold loans and car loans.
• Long terms are Home loans & educational loans and any loan which generates wealth or asset.

Just plug in all the relevant numbers and add up the two columns and arrive at the net worth.

Now for cash flow statement. Again draw a line at the centre and name one column as “cash inflows” and other as “cash outflows”. On the inflow side list monthly (or yearly) income from all sources such as salary, bonus rent and investment income (Interest & dividends). On the outflow list all monthly(or yearly) expenses separating as fixed expenses like EMI’s, household expense, children school/college fees , insurance premiums and monthly investments like SIP and variable expenses like shopping, entertainment ,vacation or anything which is not regular in nature.

Plug in the numbers and add up the columns.

Diagnosing you condition.

Strong pulse: If your assets exceed liabilities your net worth is positive. And you have more inflows than outflows, then it tells you have a strong pulse and spending within your means and on track to achieve your financial goals. The degree of strength depends on the size of surplus.

Weak pulse: If your liabilities exceed assets and your net worth is negative. And you have cash flow is in deficit, then it shows you have a weak pulse and your spending beyond means and own unproductive assets.

What should be the goal: increasing net worth each year and keeping expenses under control. If your pulse in weak, take action now to improve your fiscal fitness. Regularly checking your financial pulse can show whether you are on solid financial ground or whether you have strayed a bit from your goals and objectives.

Let me end with a quote from Warren Buffett

“If you buy things you don’t need, soon you will be selling things you need”.

Call us to check your “FINANCIAL PULSE”.