Like a medical checkup, you need to also do a regular financial checkup to check if your financial situation is healthy and make financial planning. You can calculate your cash flow and assess your financial ratio, such as:
-
Solvency Ratio (debt)
The ability to pay debt per month, calculated by comparing the debt with income. It is considered ideal if the solvency ratio is less than 30%. -
Liquidity Ratio (emergency fund)
Amounts of cash funds or cash-equivalent assets (cash, deposit, money market mutual funds, etc) available. It can be calculated by comparing cash money or cash equivalent assets with monthly income, if the amount is more than 6x that means you have a healthy liquidity ratio. -
Saving Ratio (investment)
The ability to spare some amount of income every month to save or invest by comparing a yearly saving with a yearly income. It is considered healthy if the saving ratio is more than 20%.
After knowing your financial health, here are some tips to support your financial health.
-
Know the difference between needs and wants
Every product and service you need must be fulfilled in your daily life, such as electricity tokens, food, and many others. Wants, on the other hand, are optional expenditures, usually not quite important, replaceable, and do not need to be bought. Basically, wants are not binding and you have no obligation to fulfill them. -
Beat the inflation
You need to know the difference between saving and investing for future financial planning. Saving is an activity of sparing money for short-term needs (like backup funds). Meanwhile, investment is an activity of developing money for profits to achieve your financial goals.
Investing is necessary to prevent assets from devaluing by future inflation. Investment targets can be used by beginners: beat inflation by investing as early as possible.
Source: Bahana TCW, CEIC, 2021 -
Invest first, spend later
For an optimum investment, spare some of your income to start saving and investing, before allocating them to various expenses budgets. The spared fund can be allocated for emergency funds, investments, house down payments, or retirement funds.
By prioritizing savings and investment allocations, you are self-managing and adjusting lifestyles by using funds allocated on the expenses budgets, so you can be more frugal in your financial management. Even a small saving can always be beneficial for the future. Start saving or investing small, you do not have to go big at first, and be consistent in increasing the amount of funds you save or invest. -
Separate your income and expense accounts
Discipline is one of the keys to successful financial management. You may try to separate accounts for your income and other accounts for savings, investments, mutual funds, or retirement funds. With that income and expense budget, it is easier for you to manage your funds. -
Use a financial planning technology to invest
Among many financial planning apps available on the internet, Welma by BCA is here for your better financial planning. Use the app for investment transactions and get information on various Wealth products (Mutual Funds, Bond, and Insurance) marketed by BCA for each investment risk profile. You can also use the Auto Subscription feature or Mutual Fund investments for your sparred income.
Writer: Theodorus Nico, Investment Specialist Bahana TCW