The thought of planning your finances, or simply making money choices, can be daunting — it can feel like there’s too much to wrap your head around, and there’s always more to be done. Often, this can make you want to delay the exercise; sometimes, it can paralyse you into inaction. For us at 1 Finance, it was important to not only help with creating a holistic financial plan attuned to your demeanour, needs and goals, but also to make sure that you feel motivated and prepared to follow through with it.
To do this, we calculate your Financial Behaviour Score, which essentially represents the impact your decisions have had on your finances so far. It shows what you’ve done right, but also what you need to pay more attention to. Think of this as a navigation tool that helps you take stock of where you stand financially and helps us prioritise the steps you need to take to stay on track for achieving your goals.
How Do We Calculate Your Score?
Once you’re on board as a member, we familiarise you with our mission and approach towards planning, and then ask for some basic data that helps us get to know you better and customise our recommendations. This information — things like your investment portfolio and frequency, liabilities and EMIs, credit score, household and lifestyle expenditures, insurance cover, dependent family members, etc. — throws up insights on the way you’re managing your expenses and liabilities at present, how you’ve allocated your assets and how protected you are against emergencies. Based on these three telling indicators of your financial health, we allocate a score to you, which points to which of these areas you’re making good progress on, and where, with some modifications, you could do better.
What Does the Score Indicate?
Here’s what your score says about you: If you score less than 50 (out of a possible 100), you’re financially vulnerable and need to course-correct; if you score between 50 and 75, you’re doing well for yourself, but there is considerable scope for improvement; and if you score above 75, you’ve essentially achieved financial well-being, which means you only need to work for fulfilment, not for money. We don’t think everyone needs to achieve a score of 100; setting those expectations only adds to the feeling of being overwhelmed. Instead, our efforts are aimed at helping you cross that 75-point mark — where you’re making choices in line with your financial circumstances, personality, life stage, etc. — and to make sure you stay there.
How Does Knowing Your Score Help?
The score gives you perspective on your finances, and for us, it does more than that. It helps us put in place a plan that you can easily act on. While making your plan, our qualified financial advisors look at this score together with other aspects that are fundamental to who you are — like your profession, age, behavioural patterns (such as how comfortable you are with taking financial risk) or where you’re at on the generational trajectory of wealth creation. For instance, if you already have a good nest egg to fall back on, we might suggest that you look into experimenting with financial products. Or, if your MoneySign® assessment reveals that you tend to be overconfident or reckless with your financial decisions, we could recommend putting an emergency plan in place at the earliest.
This is important because, as the tenets of behavioural finance dictate, people can make irrational choices when it comes to money — the decisions you make for yourself may not always be in your best interest. We’ve also found that concerns around money extend beyond just building assets and balancing your investment portfolio — so it can be confusing to know which problem to tackle first. Knowing your Financial Behaviour Score helps us identify these gaps, understand what you need to focus on to address them, and figure out where to begin.
By customising and organising our recommendations, we’re trying to make managing your finances a less daunting task. Who knows, you might even learn to embrace it, once you see what wonders it can do for you!