financialtreat – will explain about How to Recognize Financial Conditions and Tips for Managing Them Well that you will get in the following article. Let’s look at this article carefully!
How to recognize financial conditions – Checking personal financial health becomes important as an important provision before you set various new financial targets for the next stage of life. By knowing the financial condition sober, compiling new financial targets can run more realistically.
It is actually easy to evaluate the condition of financial health without having to go to a financial advisor specifically. You can use some easy ways to recognize your personal financial health. So, how do recognize financial conditions? Let’s take a look at the review!
How to Recognize Financial Conditions and Tips for Managing Them Well
Healthy Debt Ratio
An easy way to recognize personal financial health that you can calculate is the debt payment capability ratio or debt service ratio. This ratio is very important to measure whether your finances are too burdened with debt so often deficits? or, it is still healthy enough so that it can close all-important needs posts ranging from routine needs, to protection needs, and investments.
A healthy debt service ratio is a maximum of 35% of your total regular income. How to calculate it is easy. First, first sum up all the debt installment burdens that you have to pay every month or every year.
Second, total the total amount of income you get each month or every year. Third, divide the total value of monthly debt installments by the total income every month, then you will get a monthly debt ratio number. Likewise, if you want to see an annual debt ratio, then you just have to replace the total debt installment burden per year divided by annual income.
The maximum debt ratio of 35%, should not exceed that figure. Why? so that your monthly or annual cash flow is not disturbed by the debt burden. In addition, in addition to financing routine needs and paying debt installments, a person still needs to use his income to finance protection or insurance needs and invest for future financial purposes.
Liquidity Ratio (Emergency Fund)
This ratio can be used to measure your financial readiness for emergencies that require immediate cash. That is why it is referred to as the liquidity ratio. Liquidity indicates the ability of an asset to be converted quickly and easily into cash.
How to calculate it is easy. Total the number of assets in the form of cash you have and cash equivalent assets such as savings in banks, deposits, gold, short tenor bonds, money market mutual funds, and so on. Then, divide by the number of regular expenses each month.
As an illustration, currently, the value of cash funds you have along with cash equivalent assets is Rp50 million. The total regular expenses every month are Rp5 million. So, your financial liquidity ratio is Rp50 million / Rp5 million = 10 months.
Savings Ratio
One of the good financial habits that you need to always take care of is to save or set aside some income for future needs. Saving should also not be understood as putting funds in savings products alone. Saving or saving here includes also setting aside some income to invest in order to achieve financial goals.
How to calculate the savings ratio easily, that is, divide the total value of annual savings divided by the amount of annual income. For example, currently the savings you have collected reach Rp30 million.
The total annual revenue reached Rp120 million. So, your savings ratio is 25%. The savings ratio is at least 10%. The bigger the better. When your savings ratio is 25%, this means your personal financial indications are quite healthy.
If your current savings ratio is not ideal, you can start by making sure to set aside at least 10% of your monthly income for savings. This can be an interesting idea for next year’s financial resolutions.
Solvency Ratio
How vulnerable are your finances stuck in bankruptcy? If you are curious to know, you can calculate it by knowing the solvency ratio. This ratio is useful to indicate the true portion of wealth you have against the total assets you have. The figure is at least 35%, the bigger the number will be the better.
The way to calculate it is to divide the total value of your net worth by the total assets. The total net worth value is obtained by summing up all your assets ranging from liquid assets, and investment assets to use assets, and then subtracted by the total amount of liabilities (short, medium, and long term debt).
For example, the total value of your assets is Rp1.5 billion with a total liability value of Rp400 million. So, your net worth is Rp1.1 billion. What is your solvency ratio? You just divide the net worth of Rp1.1 billion divided by the total asset value of Rp1.5 billion.
The solvency ratio was 73.34%. This means that the total wealth you have reaches 73.34% of the total assets. With such a large ratio, the resilience of your financial condition to bankruptcy due to asset decline is relatively low.
What Are Some Tips for Managing Finances Well?
Maybe for some people managing finances is difficult and requires hard effort. But actually how to manage personal finances is not too complicated. The point is in intention and also accuracy. Let’s take a look at the full review below:
Make Your Own Financial Notes
In regulating personal finances the first thing to have is the financial records themselves. From this note, later the process of managing finances will be easier and simpler. This note also includes the earliest steps to take.
The purpose of making this note is to organize and monitor the entry and exit of money so that it does not fall apart and can be arranged better. Later with this note can be selected again which one needs to be reduced and which needs to be added by adjusting based on daily needs.
Doing this recording can also be useful for designing financial goals for a certain period of time. For example, there is a plan in the next 5 years to buy a house, well it can be designed through financial records that have been made.
Create a Monthly Budget
This monthly budget is very important for managing personal finances. Try to allocate 40% of income for daily needs, 30% to pay off or repay debts if there is, another 20% for savings or investments, the rest for donations or zakat.
Good at Self-Control
Being good at self-control is the main key to managing finances. Everyone has different needs and incomes. Strategies for managing finances will also certainly be different from each other.
It’s best to control yourself before buying anything. First which is the most important and most needed. For needs that can still be delayed, just delay first and put the remaining income into savings. Try to have a long-term investment, this is to build financial strength in the future.
Provide An Emergency Fund
This division of money is sometimes confusing. The main thing is daily expenses, both installments, third savings, and then don’t forget the emergency fund. This emergency fund is very important because it is used for events or disasters that cannot be estimated when it comes.
Pay off Debts and Installments
If you have debt or installments, it is better to be able to pay them off one by one immediately. The existence of debts and installments is a sign of unhealthy finances, so immediately pay off according to which priority list must be repaid first.
Avoid Debt
Being a consumptive person is very detrimental, let alone like consumptive debt. Don’t be too easy to think of borrowing money just to satisfy a wish not a need. It is better to owe money to be able to make money, for example, as a small business capital or the like.
What Are the Benefits of Managing Finances?
Training to Run a Frugal Lifestyle
A more frugal life is not a mediocre life and even lacks. Frugal living is living well enough, and can even realize what you want. This is a basic benefit that you will definitely get if you manage your finances well.
Manage your finances every month, by prioritizing obligations, and needs and eliminating or eliminating debts that can cause problems in your finances. Frugal can also control your expenses that may often be excessive and keep you from doing waste.
Practice to Be More Orderly and Orderly
In addition to saving money, if you can manage your finances well, just look at it, your life will be more orderly and orderly in the future. Everything you want, including your own needs and your family, is always planned in detail.
Not only basic needs, something that can make you do such as going on vacation, religious travel and other physical needs can also be realize, but that way life will also become more balance.
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Have Better Future Planning
If you can save money and live life more lightly without debt problems, you can be sure that your future planning is also much better. Because, when everything is well planne and organize, what you want for the future later, it is not impossible to happen.
This is the benefits of managing finances that will be felt by you both now and later. Thus the article that I can make about how to recognize financial conditions is hopefully useful, thank you.