Ccomedian Steve Martin had once said in jest, ‘I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too.”

How we manage our money says a lot about us and how we are living our life. A quick glance at one’s bank statement can lay bare their virtues and vices. If you were to evaluate your life through your money, how would you go about it? Here are some ideas to get you started.

Illustration: Suman Choudhury

What’s your preparedness?

A financial emergency could be many things. A giant hole opens up in the roof of your house. You lose your job. Your car gets damaged in a flood. You have to undergo a medical procedure not covered by your health insurance policy. Your friend is going through a tough time and needs a loan.

We all experience such crises from time to time. Being prepared for them is easier than you think. For starters, always have adequate insurance. Insure your life, health, vehicle, and if you are so inclined, your home, too.

At low costs, you’ll receive financial protection against a wide range of emergencies. But what about those emergencies that insurance won't cover — like the medical procedure not covered by your health policy, or a loss of job? For this, you must create an emergency fund worth three to six months of your current monthly income, gradually building up to 12 months' worth.

You can use a bank recurring deposit, fixed deposit, or liquid mutual funds to create this fund. Remember that this is your fallback fund and not to be confused with any other savings, investments, or capital expenditure. The fund will keep you afloat in your toughest times.

What will your family do?

A great measure of your financial preparedness is how your family members would cope if you were to unexpectedly pass away or become incapacitated today. Would they spiral into a financial turmoil? Or would they be able to absorb the shock of losing you? For any person with a financial dependent, it's critical to have a term insurance plan. This is the cheapest way to adequately insure your life in a way that if you passed away, your income would be easily replaced by the sum assured.

For a 30-year old non-smoking salaried male, a sum assured of Rs 50 lakh will cost approximately Rs 4200 per annum, and a sum assured of Rs 1 crore would cost around Rs 7200 per annum. As a person with financial dependents, a term plan should be your first life cover.

Have you set goals?

Goals are the guiding lights of our lives.We are defined by our pursuits. They shape our personalities. But they need financing too. You can evaluate your life by the nature of goals you're pursuing. Goals can be short, medium, and long-term in nature - just like your investments. How you finance your goals reveals a lot about your money management skills.

For example, you want to pursue a post graduate degree abroad in two years, so you've started saving up through a recurring deposit every month, as well as commenced your research on scholarships and loans. And when the moment comes to start college, you’ll be ready with the required cash in hand.

Are you in debt?

How have you been with debt? Have you used it to fuel lifestyle and consumption? Have you used it to build assets like a house property? Most importantly, how much are you in debt, and how are you planning to get out of it? It’s important to have a measure of your debt-to-income ratio. If it’s in the 30-40% range, you should be able to manage, especially while you’re trying to build assets.

However, if your debt is fueled by consumption and lifestyle, you need to take a hard look at your priorities. Credit card debt, especially, can be expensive in comparison to other debts like a home loan. You can earn rewards, loyalty points, deals, and discounts with your credit cards. But lifestyle and consumption fueled by borrowing isn’t a healthy financial habit, and you could quickly spin into a debt trap where you’ll end up borrowing to settle existing loans.

Do you have a budget?

Have a look at how you spend your money on a day-to-day basis. Is there a method or a plan to it? Are you making enough allocations towards important pursuits like a retirement fund or a house-buying fund? Do you save first and spend later?

A budget is simply a way to assure you know what’s important to you, financially speaking; that you don’t spend more than you earn, and are saving adequately. Setting a budget is the first step you will take to getting your finances in order-and therefore your life in order.

The writer is chief executive officer of `BankBazaar.com`