The concept of money at all times. How to manage my money?

How many times in our life, we are placed at situations when we are facing the dilemma, of what do I do now?  You have a Cash Crunch! The economy is not doing well and I may be facing a situation of job cut, reduced salaries etc. How do I manage situations ?

The truth is every individual goes through certain phases in regular intervals. One has money a plenty situation and at the same time, in a short while from there-on will have a sudden dip in the resource called CASH.  So how does one even out the ups and downs in ones life in such a manner the one does not have to depend on external sources for a bail out.

The answer lies in understanding these phases and accepting the fact that all times are not same. Hence, have to be managed intelligently so that you live up to your present, as well as you provide for your contingencies.

You could be anyone a salaried person, a professional or a business person, but the situations don’t change to much as managing money is concerned. If one examines the pattern of money flows, one will find that all these people have times of very high inflow of money, as well as times which are leaner.

The key lies in the fact that how smartly the money flow is managed. Such that the leaner times or the contingencies are well provided for and you at the same time don’t compromise the present also.  What normally happens is once you see the large balance in your bank the urge is there to splurge with the surplus cash.  The issue is not stopping the all important expenses but arresting the urges for wasteful expenses.

So how do I do this ?

One concept that goes very well is to always maintain 3-6 months cash requirement in the bank. This money is the money that is reachable in the shortest possible time. This money has to have the feature that it is reachable even by the ATM. This money will provide for all emergencies that may crop up without any prior notice. The brighter way to do this is to avail the Sweep-in Fixed Deposit (this feature allows you to manage the money more intelligently) with you Savings Bank.  This way the money is not just sitting in the savings bank but earns a rate which is much higher or almost closer to the fixed deposit account. It’s a very commonly available feature with most of the savings bank accounts; the only fact is this product has not marketed by the banks for the reasons well known to them.

Next what one can do is to provide for the larger expenses that may come up with a view of next 1-3 years. The idea is what if I don’t have a job for the next one year!  Yes, this is a hair rising situation but it is equally a most likely situation in today’s world.  The best solutions for this kind of situation would be a series of small fixed deposits each deposit could be an equal to say 3 months of your salary or an average quarterly inflow of cash in case of professional or business person. This way you don’t have to break in a large Fixed Deposit and lose out on interest if there is a small requirement.

This way one could provide for all the contingencies without sacrificing the growth potential of the other money that are invested with a long term view. Or, dipping into the money, which are kept other bigger objectives like children’s education or retirement.

by

Amalaraj A Marian,
Planner and Investment Consultant
R/H No 9, Prabha Ashish Residency, Nr K. J. Metha High School,
Nasikroad Nashik 422101
Ph:9822004673/9225119965
Em:amalarajm@sancharnet.in

Households with an annual income below Rs 71,000 are categorized as lower income ones, numbering 40 million.

Households with an annual income above Rs 3 lacs are categorized as the higher income ones, numbering 43 million.

(Figures are approximates as per a recent survey)

Few facts are important: -

• The Middle income Group is much larger than the combined number of the other two income categories.

• As India has rapidly progressed since 1990, there has been an upward shift from the lower income to middle income and from middle income to higher income households (population)

• Since the ‘Middle Class’ is very large, within this classification also there are sub classifications as per the income levels.

  This large populace gives India a unique identity and marketers a large consumer base. Despite India’s diverse  culture most of the MIDDLE CLASS VALUES are common across the country.

• The Middle Class is cautious, careful and conservative.

• While there is good literacy level and increasing awareness of the New World without Boundaries and Globalization, middle class would still like to preserve what they have.

• The family seniors have worked for most of their lives holding on to their dear jobs and hence are very pro Government Service.

• Stability and surety of income is very important to them.

• They have gone through the gradual cycle of acquisition of consumer durables and assets and believe in the same principle.  (They worship on buying the first motorbike or small car and paint religious symbols on them!)

• They have learnt not to take good times for granted and would like to save and re-use.

• They use polythene covers on all new furniture items and the car seats, till the children force them to part with the same.

• They are great votaries of good education for their children but would still recommend Engineering and Medicines as the top professions.

• The younger population has started exploring new career options and a large percentage of urban youth are engaged in B.P.Os, Retail, Insurance and Telecom sectors. This has brought lot of disposable income in their hands and hence the ‘ Brand’ consciousness and the ‘Café’ culture.

• Parents are very proud of their working children and do fuel their aspirations, but are at best Cautiously Optimistic of their grand plans. (They are somewhat vary, lest the good times do not last)

• The Power of Prayer is held to be sacrosanct. Rituals, Customs and Mores are important. Festivals and Marriages are great occasions for the family get together (All somewhat diminishing in the urban areas)

• Opinion of the neighbors and social groups is still very powerful.

• Mothers will always eat after feeding the children and the husband. They would insist on handing over home made food Tiffin to the four or five figure salary earning children, who obviously are more comfortable in being seen to with the times and by ordering a Pizza or Burger. (This does not however faze the doting mothers)

• A study published some time back in India Today stated that children still spend maximum time at home and are deeply influenced by their parent’s opinions (Though none of the two generations would readily agree to this!).

• In a manner of speaking, parents are still their best friends!

• Marriages are made in heaven and are for life. Even the NRI children would mostly rely on their mother’s opinion for the best match (Though most of them will claim differently!)

• Home made remedies are used with greater faith than the allopathic medicines (Gargles for sore throat, Turmeric in milk for the hidden injury and Garlic for lowering B.P)

• While eating in a restaurant, they will order dishes that the family can share and think nothing of eating from each other’s plate.

Middle Class Values are shared Family Values, which are a great bonding factor. These are based on Pragmatism. They suggest Achievement and Consolidation rather than the Unsustainable Exponential Spiral. More Power to The Indian Middle Class.

Are you not proud to be an Indian ?
- ARUN VEDHERA

Well things need not be in that order and you can have all the THREE together. Sounds incredible! The simple explanations are:

Roadmap

1. Secure your basic needs, food, clothing and shelter, taking into account your own financial status (real and not based on aspirations)

2.  Understand that a ‘truly rich’ person has expenses lesser than income. Someone earning Rupees 1,00,000 monthly, with an expense of Rupees 1,10,000 would be poorer than a person earning, Rupees 25,000 and having an expense of Rupees 20,000 in the same period.

3.  Prepare a budget, with some saving planned and FOLLOW IT.

4.  Understand the difference between Assets and Liabilities clearly. Very simply speaking, an investment bringing in revenue is an Asset and the one requiring an outflow of funds (expense) is a Liability.
(Source for points 2,4 is the book Rich Dad Poor Dad)

5.  Understand simple rules of income and wealth tax planning so that maximum rebates legally allowed can be availed. Save for the above on regular monthly basis and do not wait for the year end (blues)

6.  Save regularly in safe instruments like P.P.F, Life Insurance, Medical  Insurance (very important to cover unforeseen medical expenses besides tax saving), ULIP s through the systematic investment route.

7.  Plan for the retirement and children’s education through appropriate insurance policies taken at an early age.

8.  Understand your own risk and age profile-simple rule is that you can take higher risk when you are younger.

9.  Follow Warren Buffet’s advise for stock market investments ‘when others are greedy, be cautious and when others are cautious, be greedy’. You need to be VERY CAREFUL and never follow a herd mentality.

10. Buy Cheap (economically) to be Rich. Buffet is known to tire the sellers through persistent negotiations and good knowledge till he gets a deal at the rock bottom price. You too can do the same.

11.Listen to all advice, but have a healthy skepticism for the ‘Financial Solution Providers’. Nothing wrong with them, but they have their own agendas as well, besides your interest. (Personal or Corporate)

12. Understand the power of Compounding and start saving as soon as you start earning.

13. Always aim to ‘Get More Bang Out of Your Buck’ and be on the lookout for stretching the buying power of your money. As the saying goes ‘ Marwari businessmen get Five Quarters worth of value out of every Rupee’ as against the normal Four Quarters worth.

14. Do not be shy to learn, the above trait is not hereditary, it can be learnt / acquired.

15. Pay Cash and do not subscribe to a lifestyle based on loans (E.M.I). DO NOT MOTGAGE YOUR FUTURE FOR TODAY.

16. Use Credit Cards where essential, e.g. travel and hotel bookings and not for lifestyle purchases. This will lead to excessive and impulse buying, creating undue pressure.

17. To get  thrill from your acquisitions, work, save and plan for them so that you can look forward to acquiring them one by one. Very affluent societies take many material possessions as granted and hence  are either in the race for more or bigger liabilities (note difference between assets and liabilities) or become disillusioned and start looking for ‘meaning of life’ through other means.

Economic independence should be your aim and you can achieve it by not only increasing your earning power, but by controlling your expenses, providing for the future and being debt free.

CONCLUSION

This roadmap, if followed will help protect and enhance your wealth, keep you Relaxed as you would not be in the race to ‘Keep Up With The Joneses’ and would not be worried about the next call from the bank (EMI).

Enjoy what you have acquired and be at Peace! Amen.

Arun Vedhera