We are going to enter the new financial year and I could have thought of nothing but to share my experience over my personal finance – it was in deep mess. I went for six months sabbatical last year to spend some quality time with my little one. During this period the first thing I thought was of my savings (of course I was without a paycheck). I checked my account details, credit cards bill, my spending habit, my closet, my little one’s closet, her toys collection, my kitchen groceries other household items. I did not know where to begin with and one fine morning I came across an article which changed my behavior. Yes, managing finance is 80% behavior and 20% mathematics. I realized I don’t need to be financial expert to have an impact on my personal finance. Wish, I could have learnt this early in my life but like I said better late than never.
The article suggested to have a proper budget in place to organize my finance. That afternoon I decided to buy a black little diary instead of that black Zara dress. I started writing my small expenses throughout the day and I could see where my money was going. This little diary has been replaced by walnut on my phone which captures all the expenses made through debit/credit cards. Little expenses can be entered manually. There are plenty of such apps available in your play store. A budget is telling your money where to go, instead of wondering where it went. A budget in place has helped me a lot and have started saving first. Most of us save what is left after expenses. Change this to spending what is left after investment. Following graph depicts my alarming spending habit which I had almost 6 months ago.
I am sharing few inputs which I got from that article which changed my pattern and since then there is no looking back:
There is widely used 50:30:20 rule of budgeting. This principle says 50% of your income should be used for essential expenses (food, shelter, clothing), 30 % should be used for discretionary spending and 20% should be put into the savings. However, this can be adjusted across individuals and financial circumstances. Once I started following a household budget I noticed a pattern in my spending and I figured out where I need to cut down or how I can get more out of my money.
Few good habits can be inculcated and pass on to our generations about savings are:
- We should be always grateful for the money we have.
- Keep a piggy bank.
- Streamline your wardrobes.
- A penny saved is a penny earned.
- Go for grocery shopping with a list – we end up buying stuff only to throw later.
- Avoid credit cards with annual charges.
- Payment of credit cards should be done on or before due date to avoid heavy charges (most of us know about it, but trust me as a banker have seen people saying oh!! I forgot and make faces as if it hardly matters).
- Did you know there are best and worst times to purchase your plane tickets? According to a four-year analysis done by the Airline Reporting corporation the cheapest prices for a domestic flight could be found around six weeks prior to departure. For international trips, those cheapest tickets were found at around 24 weeks prior to departure. So, go ahead plan your coming vacation.
- Look for the entertainment for free. Skip weekends at expensive brunches. Instead enjoy at beach (my little one loves beaches) or park or a drive to explore a nearby town. Local fairs and festivals are fun. Take your kids for story telling sessions.
- Get fit for free: paying each month for a gym membership or classes? Start walking or running in your neighborhood.
- Dedicate raises and bonus directly to savings.
- Divert part of your monthly salary to recurring deposits for few years and forget about it. Ask your bank for the best rate.
- Open an RD account forcefully on your kid’s birthday or your anniversary with every month standing instructions.
Did I mention Bank here? Then I must tell you that there are several rules and charges which have changed after demonetization and being aware about it is also equally important for your budget and savings. Banks have started heavy charges for :
- Not maintaining the minimum average balance.
- Cash transaction deposits and withdrawals.
- Atm transaction charges.
- Other charges such as SMS alerts, debit and credit cards, online transations.
- NEFT, RTGS, IMPS- issuing extra cheque leaves, issuing a DD, levying heavy charges in case of cheque bounce.
We cannot avoid above charges however, we can make most of the situation.
A little behavior change can help us like :
- Withdraw cash in one go according to your planned budget for the month.
- we can opt for mutual funds. They not only offer better returns than a saving bank account, they come with ATM facility. we can withdraw small amounts without paying any fees. Reliance offers such service. We can google more.
- Govt bonds, small savings schemes and other debt options offer higher returns than bank Fixed Deposits.
- Any service which are chargeable and you don’t need opt out of it.
- Lower your home loan EMI: we should also be aware about the interest rate fluctuations for borrowers. RBI has introduced the MCLR method to enable a faster transmission of rate cuts to bank customers replacing the base rate method. If you took loan a few years ago can shift by paying a fee (stamp duty, registration and documentation charges etc)
I have tried to collate the above information through my experience. But it has a bigger picture, for details you can contact your bank. Different banks have different charges.
Happy New Financial Year!!!
I would love to read your financial story because every story makes a difference.