Assessing Your Fiscal Fitness

By | January 6, 2021

Today, being financially fit is as important as being physically fit. Let us help you assess your fiscal fitness and take corrective action to become fiscally fit.


No matter where you are in life, you will always be juggling between various financial priorities. Whether it’s paying off an Education Loan, getting hitched, or paying for your kids’ education, there are fiscal challenges aplenty that can hurt even the most diligently-planned budgets.

Being fiscally fit is becoming more and more important today. You need to track where you’re spending your money and whether you’re saving enough for your future. Through this article we aim to make financial assessment easy for you.

So, to get you on your way, we have listed down a few parameters that should help you assess your fiscal fitness.

Credit Score

The first step to assessing your financial fitness is obtaining your Credit Score. You can obtain your Credit Score from the Credit Report generated by any of these CICs (Credit Information Companies) – CIBIL, Equifax or Experian. This report gives a detailed summary of your credit history which is vital for banks and other money-lenders to gauge your financial health.

Usually, these Credit Reports rate you on a scale of between 0 and 900. If you have a score of 750 and above, you can easily get a loan from lenders. But what happens if you have a Credit Score lower than 750? If you have a low or poor Credit Score, then lenders will reject your loan application. The poor score implies that you’re not good with handling money and that you’re capable of defaulting on your repayments.

Tip: Check your Credit Score at least once in six months. This will help ensure that your lenders are not making any errors while updating your repayments. Also, note that making enquiries about your Credit Report will not impact your score in any way.

Additional Reading: The Importance Of A Good Credit Score

Asset Allocation

What is Asset Allocation? It is an investment strategy wherein you invest across asset classes like real estate, equity, gold and debt funds. The investment strategy is implemented according to the investor’s age, investment time frame and goals, and the investor’s risk tolerance. Investing across assets gets you maximum returns with minimum risks. It also helps you achieve your investment goals.

A long-term investment plan is usually prepared using the ‘100 minus investor’s age’ formula while allocating assets. So, if you’re a 30-year old, then you should ideally invest 60% to 70% of your money in equities, another 25% to 35% in debt funds or Fixed Deposits, and put the rest in gold or real estate. In contrast, a 60-year old will be investing more of his money in debt funds or FDs, rather than equities. Basically, asset allocation plans vary between individuals. However, note that you should take your risk tolerance into account. If you are a 30 year old risk averse investor, putting 70% of your money in equities may not work for you.

Additional Reading: Intelligent Asset Allocation

Savings Rate

What is your savings rate? It is the percentage of income that you save every year. Ideally, it is around 30-40%. The higher your savings rate is, the higher should be your rate of investments. If you want to have enough funds to meet your goals or plan for your retirement, you should invest your savings towards long-term investments such as Mutual Funds.

Additional Reading: Understanding Mutual Funds

Total Assets vs Liabilities

So, what are your assets and liabilities? In simple terms, your assets include your investments, your home, and your jewellery. And your liabilities include everything that you owe someone else, like your loans.

The difference between your assets and liabilities is your net worth. Generally, your total debts should not exceed 50% of your total assets. If it exceeds, then your finances are not in place. In such cases, you should stop borrowing money until you pay off your debts.

Additional Reading: The Stack Method: An Effective And Speedy Way To Clear Your Debts

Emergency Fund

When you’re planning your finances, don’t forget to set up an emergency fund. This investment is handy for emergency situations in the future, such as suddenly losing your job or medical emergencies in the family. An emergency fund should ideally be able to meet 6 months of your monthly expenses, so make sure that you save accordingly.

Additional Reading: How To Build An Emergency Fund

Debt-to-income Ratio

Your debt-to-income ratio will help you understand how much of your income is spent on paying your debts every month. Your debts ratio should be between 30-40% of your income, and not more. For example, if your gross monthly income is Rs. 1,00,000, then your monthly debt payments should be between Rs. 30,000 to Rs. 40,000 only. If your debts ratio is above 40%, then you either have to cut down on your debts or increase your income accordingly.

Additional Reading: How To Manage Money When Drowning In Debts

*First published in October 2016.
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