FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
7 alerts for a money crunch!
Can you survive a job loss for six months? Do you have some funds stashed away for such emergencies until you gather your reins and surge ahead confidently with a new job and a new plan for the future in place? What about a medical emergency? Do you have resources that you can tap into for such a scenario. If the answer is No, then it is time to take a serious look at how you manage your money.
Alert #1: You are terrible with bills and payments!
Maybe its forgetfulness or a laid back attitude or a chaotic lifestyle, whatever the reason, if you are laden with unpaid bills, get fined for late payments 70 per cent of the time, bounce a few cheques every 10 months, then it is time to take stock of your organisational skills, at least in your personal finance department.
Keep a monthly tracker, set reminders on your mobile, keep an online calendar that beeps when bill, insurance and other payment deadlines arrive, choose whatever means that you are comfortable with to meet the objective of being methodical with payments.
Sort bills in a folder, keep them accessible at one place.
Alert #2: You use your credit cards excessively and often take loans.
The golden rule is to spend less than you earn. Distinguish between your needs and desires. If you desire something too expensive, which you are tempted to purchase with your credit card, think twice.
Don’t splurge, see if it should be on your priority list. If it is a must have and you need it that badly, save for it. That will help you decide if you feel it is worth the effort.
Remember, too much debt will eat into your monthly spending and put a road block to any kind of saving, as you will be busy paying off your credit card bills and EMIs on personal loans for you to set aside anything for a saving.
Instead, try to reap the power of compounding interest by saving some funds. Once you are sitting pretty on a pile of money, you could then indulge in a well-deserved vacation or that powerful music system, you always wanted as part of your relaxing Sundays.
Alert #3: Obsessive, compulsive, impulsive shopping.
Well, shopping malls, branded stores and supermarkets lined with tempting new entrants were designed with you in mind. These places you should avoid like the plague, if you are not someone who checks the price tags of goods, but instead rely on the ‘I want it right NOW!’ mind frame.
Don’t stack your living room or your kitchen or your fridge, with things that are purchased without any rhyme or reason.
Take the example of Rema. She has to try out new brands, interesting gizmos that she has no use for, antiques that she fancies endlessly and also food stuffs, the packaged, canned, ready to serve, frozen variety.
Her living room is stacked with odd, terribly expensive antique pieces that she does not even have the time to look at, her fridge overflows with canned foods that are well past their expiry dates and she owns three different kinds of mp3 players which she does not use! You are now thinking what a waste of money! Exactly!
It is painful routine, but make it a habit. Keep a tab on your money outflow, make a note of what, where, when, how you spend. At the end of every month, track your bills using an excel tracker or a good old accounting notebook and shred bills that are not required retaining warranty papers and bills, for goods that can be returned.
Rema did that and realized how much more she could save with a little discipline!
Alert #4: You are a debt juggler!
Do you have a priority list of debts that you clear based on how heavy the late fee or charges are going to be or when next you need to repeat the use of that particular service? If this is the kind of lifestyle you lead, you need help!
Find ways to cut back on your monthly expenses and pay off all your dues as quickly as you can. Don’t let yourself into such a pins and needles situation again! Always cut back on spending, conserve on resources until to achieve control over your finances.
Alert #5: Cheques that bounce!
If you think you can write cheques that cannot be encashed and get away with it scot free, think again! Bounced cheques come with hefty fine amounts and establishing such patterns will not bode well for your financial track record.
Alert #6: Late and default payments.
It can be minor expenses like a fine for the video or book that you returned late or consistently incurred late payment charges on your credit cards or EMI payments. The former just piles on miscellaneous expenses that end up adding to a significant percentage, while the latter can lead to big trouble.
Making a habit of this consistently can get you labeled as a defaulter. Your interest rates and lending rates could increase at an accelerated pace on the basis of your track record for late payments. Defaults will be reported to CIBIL.
If a pattern is notice you will find taking a loan or applying for a credit card in future extremely difficult. CIBIL keeps track of all your credit and generates a report that clearly shows your past repayment track record.
Nowadays banks are keeping a close tab on these credit reports and base their loan decisions on the financial health of the loan applicant.
Alert #7: You don’t have back up funds in place!
Can you survive a job loss for six months? Do you have some funds stashed away for such emergencies until you gather your reins and surge ahead confidently with a new job and a new plan for the future in place?
What about a medical emergency? Do you have resources that you can tap into for such a scenario. If the answer is NO, then it is time to take a serious look at how you manage your money.
Small strategies will help go a long way! Here is a sample of a few things to start with, use your judgment and build on it. Give it plenty of thought, time, effort, patience, commitment and enforce a plan of action.
a. Start a savings bank account that is different from your salary account. Determine how much money you would need to comfortably and prudently manage your monthly expenses then transfer the rest automatically to your savings account, every month and keep it inaccessible for routine needs and curb any temptation to eat into these savings.
b. Prepare a budget and stick to it.
c. Keep your credit cards locked away atleast until you take control of your spending habit. One can also use a credit card to wisely keep track of monthly payments, but that is for people who can differentiate between a want and a need. Until you find yourself in that place, lock it away!
It is better to start as early as possible before you find yourself in a financial mess. Before you land yourself in big trouble learn to implement some rescue measures well in advance!
Keep watching this space on more such tips on managing your money.