When it comes to money, the commonest refrain that I have heard is “I just dont know, where all my money goes by the last week of the month”. And inspite of the decent salaries, most are left waiting desperately for the next paycheque! Does that sound familiar??
The one problem plaguing the IT generation is money! Hmm…there! I see you jumping off your chair and you want to point out in the loudest possible voice that those IT geekies earn so much money!! Most of the time, a lot more than other industries. Yes, that is true. And that is precisely why it is now a problem. Infact one personality development help book, very beautifully summarized the situation thus, “It is never a money problem, It is always an idea problem”. Nothing else could be closer to truth.
All our young guns of IT, earning big bucks, lack one basic area of understanding…and that is “Money Management”.
And for people who are in the *I dont know where my money went (IDKWMMW)* state, what they earn is never enough. No matter how many salary hikes they get, they have an inbuilt trigger which gets them broke, in no time!
In our country, the first quarter of every year, is usually the most dreaded one, because most of us pay the price for the year round revellery, in these three months. Several bad planners (the IDKWMMW people), end up getting almost a fraction of their salaries in February and March, thanks to the Income tax, which gets deducted at source.
But there are several, simple to adopt measures which would put you in greater control of what is rightfully, your money. I am no big snooty finance guru, or some such whizkid, doing the “big talk”, but a very regular person….the usual…two hands, two legs all attached to a body and a head on top of my shoulders, and ofcourse the squishy stuff inside….known as the brain! So, most of what I put in here, is stuff that I usually do and it works well for me. And I believe there is no reason why it should not work for you. Provided you are willing to give it a shot.
- The very first step is to make a quick assessment of your current situation, vis-a-vis your income vs. expenses. You may want to create a small statement/balance sheet to get a good view of your assets and your liabilities. List out “ALL” your liabilities, such as personal loans, home loans, car loans, credit card outstandings, and so on. Add them up so that you know exactly where you stand. This first little excercise may scare some of you. But if that is the story of your life, then you better face it and deal with it sooner, than later.
- The geeks (like myself) like excel to do this, but for most people, a small notebook works just as well. Keep tab of what you earn and what you spend, every month. In otherwords, keep a monthly budget. More importantly, don’t just keep it. Use it. Keep it updated with all your expenses that you incur. Categorize them under broad heads and keep entering the amounts as your incur them. This will show you, at any point of time, what is your position. You can also use this statement to allocate your income across the heads and then compare the allocation with the actual amount spent. There! You’d know exactly which areas you ended up overspending. That extra bottle of perfume that you bought on a whim (and probably forgot about), will show up here ;-)! Infact, if you are interested, leave your email id on the comments section and I could mail you the budget template that I use (created in excel).
- Debt-Servicing: After reading up a bit on money management, and largely out of my own experience, one thing is very clear. You have to aim to keep your debt payouts (read EMIs/Credit Card Payments) at about 30-35% of your total income. Anything beyond that disturbs your current liquidity. What it means is that roughly if your income is Rs.10,000, then you must not be spending more than Rs.3000 towards your EMI payout. If you are, then you need to re-look at what type of liabilities they are. Can they be settled full and final, can the payment be re-worked, etc. You may want to explore the possibilities with your lender. Sometimes you may end up with an increased tenure, but you may also buy yourself some breathing space.
- If you plan to make some big purchases, plan ahead! Atleast a couple of months in advance, that way you will have enough time to research the market about the product, its alternatives, some good deals and most importantly you will have time to touch base with people who are already using it, to get some real feedback on what you are going to purchase. This timeframe will also help you to save up for it. And then one day when you are ready to buy, just go and get it. Let me share a personal experience here. My wife and I, had a desire to get a big screen TV. But we waited close to 10 months before we finally bought it and during those months we went through hundreds of reviews and probably countless times we compared parallel products before we finally made up our mind. And yes during that period we were also working towards funding the TV, so on the day of the purchase, we paid cash! And we felt so good about it :-).
- Dont be a plastic junkie. Credit cards give you unlimited purchasing power in the market today and to most people, unlimted headaches too. And to the absolutely naive, it gives the false feeling of being the king of the world. On an average, a person using cash would plan for a Rs.100 purchase and end up with a Rs.100 purchase, whereas a person using a credit card typically ends up purchasing around twice the amount, that he had planned. e.g Rs.200, whereas the original plan was to spend only Rs.100. Why? Because you dont have an immediate cash-flow at the point-of-purchase! So you really dont realize how much debt you incurred. May not be true while making one big buy, but usually it happens when you are buying several small things, and you end up buying several other small things which you originally did not plan to buy. And universally, I believe everyone thinks, “let me buy this with the card and I’ll settle it first thing when I get next salary.” But then the pay-cheque arrives and so does the card statement, which so temptingly shows you that you need to pay only a tiny fraction of the total outstanding. And before we even realize it, most of us fall for that “minimum payment” trap. Then begins the endless cycle of minimum payments and eventually you end up repaying amounts which is several times more than the original cost of the article that you purchased. Do you even realize that any standard credit card charges interest almost @ 36% pa.?? The billing model is designed to keep you under debt at all times and still not make you realize the pain.
But then there are better ways to use the creditcard than what is described above. I use it only when there is an offer on swiping the card, to get some reward points. And most importantly, I use it unconditionally only when I have the cost of the article, in cash. So the idea is to swipe the card, get some reward points, and(or) some cash back offers. And immediately settle the card balance in day or two (latest). So that way, you avoid paying ANY charges to your card company. And if they levy a charge or a fee, just call them up and ask to cancel your card. You would be surprised at their willingness to waive off those extra fees and charges.
- Plan to set aside atleast 10% of your total income into a seperate account, which you would not touch COME WHAT MAY!! And let me tell you it is definitely not as easy as it sounds. Once you come around to compute how much the 10% works out to, you will face some difficulties doing this. Infact, even I was able to achieve this ONLY recently. Hence, shoot for 10% and you would end up somewhere in the 5-7% bracket to begin with. And I’d say that is certainly good enough for starters. Once you make that a habit, you may even consider growing that small kitty through some investments. But even if youre not the stock market types, over a period of time the kitty sure grows nicely (assuming you dont touch it at all) and you feel good looking at a neat amount set aside.
- Do some tax planning. No fun letting your hard earned money vanish in taxes. Learn about tax saving instruments, such as life insurance, etc. They definitely hold you in good stead in the long run.
- Try to plug the holes in your budget. For example, are you paying for a magazine subscription that you dont read? Stop the subscription. Do this simple test. If you havent read the last 4 issues, you probably will not read them ever. Or do you have accumulated reward points, that can be exchanged for something useful, utilise them before they expire. Optimization is the key. But then make sure you dont go over enthusiastic about it and begin cutting corners everywhere. Because there is a very BIG difference between “optimizer” and “miser”. And you dont want to be the latter.
And last but not the least keep aside atleast 8-10% or maybe a fixed amount of money aside, everymonth, which you get to spend *exclusively* on yourself. This is extremely important because most people who are under debt, start slipping into depression because they are never left with enough to fulfill even their small desires. And they end up feeling like slaves who are slogging just to distribute their salaries to the banks and to the money lenders! Use this money to buy those small little thingies that you just lay your eyes on but then you explain to yourself, on the way back home, why you should not buy it. Thats sad. And then why are you working anyway? Money sure cant buy happiness but if you have some at hand, it definitely comes in handy. So lets stop being the IDKWMMW kind of person and regain complete control of our money.
Please feel free to share your own views and ideas on the topic and if you used any of the suggestions mentioned here, I’d be glad to know if it works for you.
Looking forward to hearing from all my readers!
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