Are you financially healthy? Here are 4 indicators to check

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Like your favourite video games, life constantly throws us new challenges; and every now and again, you need to be ready for a boss fight. But are your finances healthy enough to get you through it?

As many top gamers know, sometimes the best way to win is just to focus on not losing. In most games, it’s also true that being in a good state means far more than a full health bar – it’s everything from the med-kits / potions you store, to managing your ammunition.

Financial health is quite similar to this; you need to look beyond the size of your next pay cheque, to determine if you’re really “healthy”. It’s not just how much you can make, but how well you manage those resources. Here are the four main signs to look for:

1. Have sufficient heals to back you up when tanking (Solvency)

The key is to make sure that the damage you take never exceeds your health / healing by a given margin.

That’s a little like solvency in your financial health. Your damage (debt and expenses) should never exceed the total health (income) you’re receiving every few seconds. A good safety margin for the game of life is 50 per cent.

That is, the amount you have to spend every month shouldn’t be more than half your monthly income. If you’re earning $4,000 a month, then all your bills, food, travel, etc. shouldn’t amount to more than $2,000 a month. The best way to keep your budget in balance is to track your monthly expenses – don’t take on more loans or recurring costs (e.g. gym memberships and car loans) if it would raise your monthly expenses beyond the limit.

The rest of the money can go toward savings, investments, insurance, and other forms of preparation.

Think of it this way: the damage you take shouldn’t be more than half the health you’re receiving every fight.

(Ps. Smart tanks also minimise the damage they take, if at all possible. Remember that some debts – such as home loans – can be refinanced into lower interest-rate loans. Do consult a financial professional on the best way to restructure and lower your debt.)

2. Don’t use all your ammo, potions, and other buffs at one go (liquidity and savings)

It can be tempting to empty your entire arsenal at one go. But after a temporary advantage, you’ll regret it when you turn a corner and the boss music starts playing.

Good gamers know to keep a reserve of essential supplies.

The same works for your finances. Don’t blow your entire bank account on something, because you never know when an emergency will happen. If you’re caught without cash, it can lead to damaging your other investments – such as if you have to sell your stocks at a low price, due to the urgency.

If you don’t have an emergency fund yet, build it like you would your gold or credit stash in-game. Set aside a portion of everything you earn – 20 per cent is a good amount – and gradually accumulate up to six months of your expenses.

This should be liquid and accessible, such as in a savings account. There’s no point keeping it in products like fixed deposits, which lock up the cash until maturity (there’s no point leaving your supplies at your base, where you can’t get them when you need them).

3. Keep Phoenix Down, Soulstones, and ways to respawn (Insurance)

Sometimes, no amount of hoarded supplies or healing can help. All you Minecraft and Don’t Starve players know that “death” is inevitable. In other games, your alternative is finding some way to respawn; and any other veteran gamer will have the supplies to do this if they exist.

The closest financial equivalent in life is insurance. This will cover costs that you probably can’t manage, despite good efforts at investing and saving. Some of the most vital forms of insurance are:

• Hospitalisation insurance – these help to cover your medical bills from being in the hospital. More importantly, hospitalisation insurance covers the cost of some treatments even after you’re discharged.
• Critical Illness insurance – these provide a pay out in the event of serious illnesses like cancer. This gives you time to focus on your recovery, or at least to stop work and spend your remaining time with family.
• Life Insurance – This provides a pay out to your loved ones if you pass on, or suffer permanent disabilities (that could stop you from working indefinitely). It’s especially important if you have many dependents, like elderly parents or children.
• Mortgage Reducing Term Assurance (MRTA) – This will pay off your remaining home loan, if you pass on or become permanently disabled. Owners of HDB flats already have this kind of insurance under the Home Protection Scheme (HPS), but you need to buy your own mortgage insurance for private property.

To use a Minecraft analogy, insurance is probably the closest you can get to a KeepInventory in real life.

4. Keep an eye on the endgame (long term assets and financial planning)

If you want to get the final tier of your armour, or have enough Legendary gear to get through the endgame, it’s best to plan early. Start tucking away gold or whatever resource you use. World of Warcraft players are experts at this, buying up Auction House stocks early (prices will rise later), or using other methods to stop inflation from eating into their wealth.

The same goes for your real-life financial situation. Outside of your immediate needs, consider what’s waiting for you in your “endgame”.

Will you have enough to live till 90, if you retire at 65? A great way to make sure you have enough is to work out how much you need to save by 65. This can be done through financial planning apps, or with the help of a qualified wealth manager.

The good news is, while you may not be able to use bots in-game, there’s no such restriction in real life. It’s simple to use tools like UOBAM Invest, a robo-adviser that helps you grow your wealth via automation. UOBAM invest helps to work out your risk levels and financial targets, and automatically allocates your capital to meet your goals. You can also use it to track your budgeting, to stay on target.

It’s a hassle-free way to stay at the top of your game.

When you meet all the financial health indicators, you’re free to seize new opportunities

It can be a hassle to buy your first home, or make significant investments, if you’re not financially healthy. Any unforeseen circumstance can result in having to liquidate your assets, and restarting from zero.

As such, having sufficient savings, being solvent, getting sufficient insurance, and having clear long term goals should be your first priority.