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Are You Financially Fit? – Part II

07 Jun 2019 
SOURCE: Yong Hui

In my previous article, I talked about why being financially fit is important and essential to us – like how physical fitness plays a part in our overall health too. I also mentioned the 3 Key Metrics of Financial Fitness – Cash Flow, Net Worth and Risk Management. These 3 metrics are akin to common physical fitness metrics of Cardiovascular Health, Muscular Strength and Flexibility.

Are You Financially Fit? – Part II  *Icons are taken from Flaticon.com


For those who have yet to read, no worries! Simply click here and check it out before moving on the article below which I will be sharing more on the 2nd and 3rd key metrics of Financial Fitness.

Are You Financially Fit? – Part II#2 Net Worth

Think of your Net Worth as your Financial Muscle. The strength of this muscle represents your level of wealth and determines your ability to take on more opportunities in life e.g buying a car, property and comfortable retirement.

In financial terms, Your Net Worth = Your Assets (money/things you own) – Your Liabilities (money you owe). If your Assets is greater than your Liabilities then you have a Positive Net Worth.

Assets include liquid assets like bank savings, large assets like property, cars, investments such as stock investments, bonds and unit trusts as well as CPF monies for Singaporeans and PRs.

​Net Worth Health check

Are You Financially Fit? – Part II
 If the bulk of your money is kept in low-interest bank accounts, it is akin to passively sitting on the couch watching Netflix. Just like how our muscles experience atrophy over time if it’s not used, the value of our money shrinks over time due to inflation.

How to grow your financial muscle and increase your net worth?

Just like how we work out and do weightlifting to gain muscles, we also need to make our money work. It’s important to invest our money in vehicles that have the potential to grow and beat inflation. Some examples include stocks, bonds and unit trusts.

If you have not been working out your physical muscles at all (like me when I first started 😉), you can choose to start with lighter weights to condition your body and gradually build your way up.

Similarly, in terms of investing if you have never invested before because of the perceived risks, you can start by investing in diversified instruments like unit trusts or opt to invest on a regular basis instead of sinking in a large sum of savings at one go. Check out my article for 5 strategies to help you get started on investing.

Are You Financially Fit? – Part II#3 Risk Management

Risk Management is about how resilient we are to life’s unexpected events such as retrenchment, illness or accident to ourselves and our family members. With proper risk management, we have the flexibility and strength to get back up after life throws us one of its curve balls.

 

Risk Management Health Check​

Insurance is a useful tool to help manage life’s risk and minimise the financial impact upon illness, accidents or premature death.

Make it a point to check that your insurances are up to date and be clear of the coverage amounts, as well as the terms and conditions. Do also ensure you have done the necessary nomination of your insurance policies and CPF and lastly, a will to ensure proper distribution of your assets.​

I hope you have enjoyed this article and found the tips useful!

To Your Success and Happiness,

Yong Hui​


 

This article was first published on www.yonghui.sg

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