There is a myth that New Year Resolutions are meant to be broken. But New Year gives us the chance to start fresh! This is the time to adopt new habits for a better living. Here are 7 things about managing money which if you follow will make your life simple and improve your financial health.
Avoid Impulse Purchases
Several new models of mobile phones, smart watches and cars will be launched in 2016 supported by high decibel advertisements luring you to buy them. You will be offered easy EMI schemes to buy them. Do not buy without evaluating your current financial position and the priorities. Your income is limited and you need money for different purposes. If you spend money on things without any planning, you will be forced to borrow to meet other needs. Suppose you buy a mobile phone worth Rs.50000 and use it for 2 years. The per day spend on the phone is Rs.68.49. If your monthly income is Rs.50000 then the phone cost alone will shave off 3.4% from that income and if you have taken a EMI scheme then the interest cost will again drain your income.
Do not buy more than what is required
Hypermarkets and supermarkets will be offering huge discounts. When you see that you will be tempted to buy more things thinking that you will not get it again for such low prices. Finally you end up buying more than what you need. Suppose you spend Rs.5000 every month on groceries when you buy from local kirana shop or mini supermarkets. If you go to hypermarket or a super market you might get the same things at Rs.4500. But you might have ended with spending Rs.7000 because you bought more things as you could not resist the offers. You should understand that your cash flows are important and not the discounts. If you end up spending more, it will affect your overall monetary position and you may not be able to save as much as required.
There are several payments like school fees or insurance premiums which are made once in a quarter or year. Most often if such payments fall on the same month, then we will scramble for money and sometimes use credits cards or borrow to make the payments. But if every month a proportionate amount is set aside then this problem will not happen. For e.g. there is a insurance policy for which premium of Rs.48000 is paid annually. If you set aside Rs.4000 every month in a separate bank account then it will be easy to make the payment. Same way you can provide for festival expenses and irregular expenses in another bank account and spend from that account for those purposes. This will ensure that you do not have to face tight cash flow situations.
Make Payments in time
Many payments are delayed because you forget or do not have the time or you do not have the money at the time of payment. You can avoid penalties if you make your payments in time. If life insurance policy premiums are delayed then interest will be charged. In case of school fees, schools charge late payment penalties. Delayed mobile bill payments attract late payment charges. There are late payments charges and additional interest payment charged for delays in paying credit card dues and loan EMIs and that will affect your CIBIL score. In a year if you total up the penalties and additional interest you have paid, it will be huge. It is better you maintain a payment schedule for the next twelve months and arrange funds before the due date so that you can avoid additional cost and reduction in CIBIL score.
Create Emergency Fund
There are instances where you will require meeting unforeseen expenses or situations. For e.g. your old parent fell sick and needs hospitalisation. He is not covered under mediclaim. You need money for that. Or sometimes you left the job and might take 3 to 4 months to get another job. But you need money for that period to live and make the committed payments. To manage such situations, you should keep an amount equal to 3 to 6 months of your expenses plus loan repayments in a separate bank account. You should touch this only when such instances occur. Once you have taken money from this, put some money every month from your income so as to restore the account to same level. This will reduce your stress and chances of borrowing.
Prepare Financial Plan
You need money for short term needs and long term goals. You should be able to spend for the short term needs as well as save for the long term goals. But many a times you find it difficult to meet both ends together by month end. It may be due to high expenses or high loan payments or high insurance premium payments. A financial plan will help you identify the problem areas and gives you strategies to resolve them. It will tell you how to restructure your loans, how much you should save every month towards your goals and retirement, where to save, how should you reallocate your investments, how much insurance cover you need and how to save taxes. Once you prepare the financial plan and implement it, you will get lot of confidence and peace of mind. To prepare your financial plan either consult a Certified Financial Planner or subscribe to an online financial planning service like prognoadvisor.com which is designed by highly experienced Certified Financial Planners.
Review Finances Once in a Month
You have time for work, to go for shopping, to see films, to go for holidays and money other things. But how often do you find time to check your finances? Many people have no idea about the insurance policies they have or returns from their investments. You should set aside atleast 2 hours in a month to review your finances. You should check if there is increase in expenses and if so decide how will you reduce it in next month. Check if all payments are made before due date and make arrangements for next month’s payments in time. Check if your investment returns are as expected. If not decide on consulting a Certified Financial Planner.