The seven things that decide your financial future

Most financial advice comes one piece at a time: pick this fund, save this percentage, buy this policy. Each piece can make sense on its own while the overall plan still fails, because your finances work as a system, and one weak part can drag down the rest.

Seven areas decide where you end up. None of them is complicated, and most people do well in several and poorly in one without noticing. Finding and fixing that weak area is worth more than improving one you already handle well.

1. Savings: are you keeping enough of what you earn?

This is about how much of your income stays with you, whatever the size of your salary. The gap between income and spending funds everything else, and a high income with a small gap builds nothing.

The right rate depends on when you started and what you are funding, which is why 20% is only a starting point. How much of your salary should you actually save explains how to find your own number.

2. Budget: is your spending under control month to month?

Your savings rate is the outcome, and your budget is how you get there. People with a good savings rate but no control over committed spending tend to lose that saving as soon as their income dips.

Watch the share of income more than the rupee amount. Check whether fixed commitments such as EMIs and rent take a bigger share of your income each year. How to budget on an Indian salary covers an approach that does not need you to track every rupee.

3. Stability: could you survive a shock?

A job loss, a hospital admission or a family emergency can force bad decisions if you have no buffer. You end up selling an investment at whatever price is on offer, or borrowing at a high rate.

For people who otherwise seem to be doing everything right, this is most often the weak area. How big should your emergency fund be covers how much to keep and where to keep it.

4. Debt: is what you owe helping or holding you back?

Different kinds of debt behave very differently. A home loan at a reasonable rate that buys an appreciating asset sits at one end of the range, and a revolving credit card balance at 40% a year sits at the other. A single "total debt" figure hides that difference.

The question most people have is whether to repay a loan early or invest the money. Should you prepay your home loan or invest compares the two, including the tax treatment that can change the answer.

5. Protection: is there insurance where it matters?

Insurance is the least interesting of the seven, but it decides whether the other six survive a bad event. Two policies do nearly all the work: term life cover if anyone depends on your income, and health cover sized for what hospitals charge today.

The usual mistakes are buying insurance bundled with an investment, and relying on your employer's group cover as your whole plan. How much insurance do you actually need covers both.

6. Diversification: is your money spread across different things?

Holding several fund names does little on its own. You want assets that respond differently to the same conditions. Eight equity funds holding the same twenty companies amount to one bet made eight times.

For most Indian households, the biggest concentration sits outside the portfolio: a single property, in a single city, bought with a loan. Owning eight mutual funds is not diversification explains what a well-spread set of assets looks like.

7. Net worth trend: is the whole thing growing?

Net worth sums up the other six. You can earn well and save carefully and still make no progress if your debts grow as fast as your assets. Net worth is the one figure that shows this.

We score it as a trend rather than a level on purpose. A large net worth that has stayed flat and a small one that is growing steadily are different situations, and the second is usually healthier. Net worth is the only number that tells you the truth covers how to measure it without flattering yourself.

How the seven affect each other

Weak stability forces you to sell investments at the wrong time, which hurts diversification and net worth. Weak protection can wipe out savings built over a decade. Expensive debt eats into your savings before any of it reaches a portfolio.

So putting more effort into an area you already handle well usually does the least for you. Someone saving 35% of their income with no health insurance should buy a health policy before looking for a better fund.

Find your weak area

The articles above explain what a good position looks like in each area. To see where you stand, you need to look at your own numbers.

Your Financial Health Score scores all seven and takes about two minutes. It is free and needs no sign-in. Along with the overall number, it shows which of the seven is pulling the rest down.