Believe it or not, the economic slowdown can have an upside. In the momentum of earn, earn, earn, and spend, spend, spend, there were compromises made…health, home efficiencies such as quality of help, quality of food, and time spent with family are all examples of these compromises. It is time to reflect on the situation and put some discipline and systems into effect.

This planning will make you stronger for the next boom and for all
unexpected situations that occur. With proper planning a u-turn on
your life goals and lifestyle need not be the case. Elimination of
waste however, will be a necessary part of the change needed.

The fact is that if you were born post 1970, you will have never
really seen difficult times or were too young to remember them. By the time you were working age, the economy was in the midst of being liberalized or India was already booming. With this boom brought unprecedented optimism and risk taking. Your parents on the other hand, have seen frugal times where money did not come easy and that is why they are cautious savers.

It is never too late to take stock of your finances and make a plan….yes a budget, first for the New Year and then for the years to come. A budget and a few financial resolutions will take you on the right road to sound financial health.

Here is how to get started. Keep a separate ledger for your budget. Home budgeting software such as Tally and Quicken are available but a separate notebook works just as well as long as you are consistent in making entries. Keep a small diary in your purse to write down what is spent. Initially this may be necessary as accuracy and writing down the small expenditures is important.

Budgeting 

  1. List your financial goals, both long and short term. At the top of the list is an emergency fund for unforeseen circumstances, medical bills or job loss for example. Long term goals is saving for childrens’ education/marriages. Short term may be to purchase the latest flat screen television. Aim to have saved the equivalent of at least six months of your income in easily accessible instruments.
  2. Next make a list of all your current expenses. Include everything that you need to live on including utility bills, household help, phone expenses, loan repayments, EMIs, health care, beauty parlour, entertainment etc. Make this list detailed and with sub-categories. Food should be listed separate from lunches out at office. Groceries should be broken up into milk/meat/rations/ etc. If you are unsure of the exact amount then estimate the amount. Also include money for savings.
  3. Compute your monthly income. If it varies, then take the average of the last 3 months. Alternately, use your lowest income projection to be on the safe side. Now compare the total monthly income with the list of expenses.
  4. Adjust your budget to reflect the difference between what you earn and what you spend. If your expenses total up to more than your monthly income, then take appropriate action and turn around your spending. If you spend less than what you earn on a monthly basis then that is the first step to financial savings.
  5. Go over your expenses and see what items are wasteful. Can you do without them or less of them…for example perhaps buying the latest cell phone or having that expensive spa treatment can be done less often.
  6. Plan a meeting to discuss finances with your spouse. Communication about expenses and goals are necessary. Working together on money may be difficult at first if you have different opinions and habits, but over time, the effort will pay off. Give older children allowances and teach them budgeting skills as well.
  7. Calculate the money you need on a monthly basis to achieve your long term and short term goals. If you are able to meet them then you are on your way to financial success. If not, then you need to make some more efforts in saving to achieve the goals…but do not fret as you are in the majority. A bit of effort in hardcore budgeting and savings will help you reach your goal.
  8. Review your budget with your spouse every few months. There may be other needs you may have or other savings possible.

Resolutions
The old saying “a penny saved is a penny earned” holds true even today, and is one of the paths to sound financial health. This does not mean being “stingy” or “cheap” just financially watchful and keeping track of waste. Here are a few resolutions:

  • Pay off debt. Credit card debt is the single largest money waster. Interest on credit cards is a minimum of 19% and this does not include late fees and fees for non-payment. If you pay less than the due amount more than one month then interest is compounded on the principle and interest of the previous month. Pay cash for goods or pay the entire amount of the credit card on time. If you have an EMI that you are paying then continue to pay it monthly keeping a watch on interest rates if you have used a variable interest rate. When interest is at a higher rate then it may be a good idea to pay off some principal with a balloon payment.
  • Pay your bills on time. Electricity companies and phone companies charge you if you do not pay in time. Rs.50 every month adds up. Keep track of when the payments are due as many times bills arrive late and the burden of timely payment remains with you.
  • Conserve cash. Go to each category of your budget and see which items can be trimmed. The following are only a few examples. Each person should go to her own budget and see where saving can be done.
    • Lunch –Do you buy lunch everyday? How about packing a lunch, start with twice a week and see if it is feasible everyday.
    • Expensive coffees – A coffee a day at Barista at Rs.60 adds up to Rs.1800/- per month…there is a huge room for savings here.
    • Groceries – Buy seasonal vegetables and fruits. Not only are they less expensive but they are tastier as well. Buy local foods. Nothing that has traveled many miles can be very fresh and you bear the transport cost. Buy in bulk carefully. Many times purchasing too much at one time is wasted.
    • Never shop when hungry. If you go to the grocers with an empty stomach then you end up buying more than you need. Junk food becomes even more tempting.
    • Entertainment –Have a drink at home or a friend’s place before going out for dinner. The alcohol component to any meal out is often the highest. Some restaurants allow you to bring your own wine. This is substantial savings possible here.
    • Learn how to cook. Cooking can be relaxing and a creative art. And with today’s urban diseases such as diabetes and hypertension emphasizing the importance of weight control, there is no better solution than home made food, not to mention the savings as compared to eating out.
    • Go to less expensive restaurants – If you do eat out often then remember the good joints where you got good food for less. Go to these places more often and the expensive places for special occasions.
    • Transport –Carpool when possible. Make fewer trips to the stores. Walk and take public transport.
    • Shopping – Look out for bargains. Many cloth sales take place during the monsoons for example. If you need new curtains this is the time to buy. Big ticket items such as home appliances are well priced during Dussera and Diwali. And remember when you are shopping during sales watch what you buy, do not buy unnecessary things only because they were “on sale.”
    • Downsize – Think before buying…if you really need it. Do you have space for it, can you do without it for a bit longer, will it make much difference to your life if you do not buy it?  Think about the extra junk that you already have lying around. Perhaps you can make some money by selling valuable items no longer needed. Online auction sites such as ebay allow you to do this easily.
    • Check and track bills- Look at all of your bills. Get rid of things that you are not using like gym memberships or cell phones that you are not utilizing. Call other service providers and ask if they can get you a better deal. Track your electricity bills and watch your usage.
    • Banking –Know what your bank is charging for and act accordingly. Are you paying for chequebooks or less than minimal balance fees? Negotiate with your bank to cut fees, especially if you have multiple accounts, have FDs, or make investments through the same bank. Keep track of your statements and check periodically online to make sure it is accurate. Banks and computers do make mistakes. Update passbooks and compare against the statements sent home.
    • Libraries—Join libraries, instead of buying books and DVDs. Remember to return them on time to avoid late fees.
    • Gifts—Buying gift cards is easy but a little more thought into gift giving can save money and make the gifted happy. Shopping around and picking a book or shirt of the person’s liking may save you money. Also a hand made card is appreciated and most likely to kept longer.
    • Learn the basics of Finance—Every person should learn the core concepts of basic finance. The fundamentals of how money grows, simple and compounded interest, etc. are important. If your husband handles the investing then learn where the money is going and why. After feeling comfortable with this then you can begin investing. If you need company to invest, join an investment club where people meet to discuss where the best instruments are to invest. You can also start one of these with friends.

An idea of spending patterns can be determined after tracking expenses and writing them down. So begin the New Year with a suitable budget and you will be on your way to sound financial health.

Arti Karve
Aarti Karve, a Bangalore based software engineer began her career only a year ago and has learned budgeting skills early on. Aarti saves a high proportion of her salary. “My aim is to have a secure future so it is important to save. As I do not have many family responsibilities (financially), I manage to save 65% of my salary unless I make any huge expenditure like paying for my education, buying new things or traveling. I also want to remain independent and that also takes saving. An emergency fund is necessary,” she says. Most of her expenses are phone bills, travel to visit family, and her daily room and board expenses. Aarti’s company provides transport and other than a few nights out with friends, she has few temptations to spend.

Is Aarti unique, don’t many working singles spend beyond their means or are able to save very little these days? It depends on two factors, goals and upbringing. The habits one learns when growing up as well the financial goals when one is earning. Aarti has learned good budgeting habits from her family and close friends and living independently forced her to manage finances on her own.
“My financial goal for 2009 is to save the maximum money possible since it is good to be financially secure and once I have good amount of savings I can spend that without any loans or EMIs. Many of my colleagues have a spend now attitude as they feel when they do have a family they may not be able to spend on themselves,” she says.

Manjusha Bhide
Manjusha Bhide took time off to raise her three children after getting her PhD in biochemistry. She lives in a heritage bungalow that was built by her great father-in-law. “Since we are talking about money I must tell you that maintaining this house takes a lot of cash. Constant repairs and upkeep is getting expensive and it takes a large chunk out of our budget,” she says.

However, now there is no option to move so soon, so she will enjoy the house while she can. Her goal for the 2009 is to give wisely. “We like to donate to charity and in addition we give low or no interest loans to needy people. In the past, we have over extended ourselves. Sometimes the loans are not repaid and we lose money. The same returned money I could use to help someone else but if it is not repaid then I have to dip into my own savings to help the next person who asks for a loan,” Manjusha declares.

Manjusha plans to cut down her eating out as she feels that a feeling of satisfaction rarely comes after eating in a fancy restaurant. “It is rare to get your money’s worth. It is better to eat in an average hotel where you know the food is good. Many times the fancy restaurants or 5-stars are not up to the mark.”
Retirement and children’s education are her main saving goals and being conservative with spending, saving has not been a problem. Savings parked in stocks has depleted, but she is hopeful that the sensex scenario will improve.

Published in Good Housekeeping January 2009

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