Fixed deposits in banks are one of the most preferred investments by risk averse Indians who also look forward to earn a higher interest rate as compared to the normal savings account in the bank. Now these fixed deposits have another wonderful benefit to offer the customers and that is the provision to take a personal loan against it in times of requirement. This a great idea for personal loan that actually comes at a much lower rate of interest as the bank gets the security of the fixed deposit against which it provides the loan.

Key benefits of Personal Loans against Fixed Deposits

The reason for the growing popularity of this option as against traditional unsecured personal loans is the host of added benefits that come with such a loan.

• The interest rates available for personal loans against fixed deposits are lesser than conventional personal loans. The rates for such loans are generally 1 to 2% higher than the rates being paid by the bank for the fixed deposit.
• Such a loan does not require one to liquidate the FD which in that case lesser interest for being broken midway. This way the asset remains while the immediate financial requirements are met.
• The tenure for the personal loans against fixed deposits normally extends up to the maturity of the fixed deposits.
• The processing is also hassle free as the bank where you already have the fixed deposit will itself provide the personal loan against it.
• There is no prepayment penalties associated with these kinds of loans which gives the borrower the freedom to repay whenever his cash flow situation improves.

The Procedure for Personal Loans against Fixed Deposits

The process involved in availing a personal loan against fixed deposits is relatively simple and fast. In this case the fixed deposit will have to be hypothecated to the bank. At the time of the application the following documents will have to be submitted to the bank.

• Demand Promissory Note
• Pledge/lien Letter
• Loan Documents
• Overdraft Agreement
• Application Form
• Deposit Receipt
• Signed Receipt

There is a small processing fees that will be charged by the bank for the approval of this loan and the loan will be sanctioned in a very small time frame.

However one must carefully analyze the actual losses that will be accrued by taking a loan against the fixed deposit at an early stage of the deposit as compared to taking it against a deposit that is nearing maturity. In most cases it is preferable to take loan against deposits that are closer to maturity as the amount due will be more in this case. But at the same time one must understand that the tenure available for repayment reduces in this case. Weighing the pros and cons of both the situations the borrower will have to decide for himself which is the most advantageous situation for him. However in all cases taking a personal loan against fixed deposit is always better than a high interest rate pure personal loan.

Today there are a plethora of options in personal loans being provided by various banks and other financial institutions. Though the exact eligibility criteria for availing such personal loans varies from bank to bank there are few common guidelines which most of the lenders follow when it comes to approving a personal loan in India.  The basic parameters that determine an individuals’ eligibility include age, profession, annual income, credit history and outstanding liabilities at the time of applying for a personal loan.

Age Criteria: The general guideline followed by most banks and other financers is that for availing a personal loan a salaried individual must between the ages of 21 to 60 years while a self employed persona has to be within 25 to 65 years of age.

Employment Stability: A salaried person with a minimum of 2 years of professional service with 1 year in current profession and a self employed person with a minimum of 5 years of total earning tenure with at least 2 years in current profession is eligible for a personal loan. However these criteria are flexible depending on other factors that the lender shall decide.

Financial Situation: The current and previous financial condition of an individual sis an important consideration while approving a personal loan. Minimum levels of income have been specified by the different banks for applying for personal loans. The financial condition determines the repayment capacity of the individual and hence the lenders take maximum cognizance of this aspect while giving an unsecured personal loan. The amount of loan that one is eligible for is also decided based on this criteria.

Credit Rating: The credit history of the applicant is another aspect that lenders would like to look into while approving personal loans. Delays and defaults in paying EMIs of other loans or credit card dues are some issues which can lower the eligibility for personal loans from banks and other financial institutions. A good credit rating on the other hand enhances the total amount that one is eligible for.

Employer: Since the loan is unsecured the kind of employer the applicant is working with is given due credit while deciding eligibility for personal loans. Public sector employees and those working with reputed and established private companies thus are better eligible for availing personal loans as compared to others as there is stability in their income.

Outstanding Credit Liability: Any other pending loans which the applicant has at the time of applying for a personal loan are also likely to reduce the eligibility in terms of maximum amount possible. Since the amount is calculated as per EMI that the applicant can possibly repay the contributions towards other outstanding loans reduce the total personal loan amount drastically.

However in the case of personal loans the local branch manager is given substantial discretionary powers which he can use to approve a loan despite limitations in the eligibility criteria of the applicant. The customer must always try to bargain the best possible deal while negotiating with the branch manager for a personal loan.

Moving into one’s own home is a joy, which is to be felt not explained. It is utopia what with the poojas, house warming functions, searching for just the right furniture and fittings, praises you get for having taken care of the finer parts in construction and decorating the house and the pride in having acquired a physical symbol of success.

After the festivities are over, and with the dawn of a new month, a new realization comes home. For the fortunate few, it is the reminder to fund your bank account, as the loan EMI is due after a week. For others the money simply flew out of the bank account.

It is time for us to act like the fund manager of a mutual fund or investment fund. Taking informed decisions to manage the asset that we call home and the liability that we call housing loan. By being prudent, you can get high “returns” in the form of saving on interest outflow.

Fund Management When Carrying a Home Loan

As a fund manager of the house, one has to find ways to maximize the benefits of the cash flows. Make a list of all the loans and savings/investments that you have made. Do you find places where the savings/investment is giving lesser returns than the loan rates? This can typically be seen with your endowment insurance plans, your EPF and PPF, the postal deposits, sometimes-even ULIPs. Why should you be invested in something when you are paying higher interest to somebody else? It is better to close all or most of these lesser returns savings/investments and divert the funds to close the home loan.

Care should however be taken to replace an endowment insurance plan with a term plan of higher cover. Your employer and your EPF officer will allow withdrawal of funds from the EPF account for buying and closing the loan of a house. The PPF is not so flexible with letting go of your money. ULIPs and the postal deposits can be closed only after the stipulated 3 years of lock-in.

Ways to repay your debt quickly:

There are ways to come out of the EMIs and make your loan tenure shorter:

1. Partial pre-payment

2. Switching to a lower rate

3. Increasing the EMI

Now let us look at the options in more detail. The best part is that, the options do not in any way add to your existing budget.

Partial Pre-Payment

This is the easiest way to close a housing loan faster. The method is to make use of any one-time income like a bonus, salary arrears, gifts from friends/relatives, any wind fall gains from shares, property sold, deposits closed, tax saving investments maturing, closure of savings that are giving you lesser returns than the housing loan, etc. to partially close the housing loan.

The effect is that the one-time payments help to reduce the principal balance in the loan. And when the EMIs continue, they have lesser of the principal to cover. So the same EMIs need a lesser time to close the loan. More earlier and more frequently the partial pre-payments happen the faster the loans close.

Banks generally allow partial pre-payment starting from Rs.10,000/-. There are no charges for partial pre-payment or even full prepayment of housing loans currently.

Switching To a Lower Rate

The interest rates current are in a rising trend. There are times when the interest rates start going down too like NOW! Based on the interest rate reset period, different banks will reduce their rates at different times. If the reset interest band of your lender is a wider band, you may be at a higher interest rate for a long time after other banks have started to reduce their rates.

Switching to a lower interest rate will shave off a few years from your housing loan. Care however has to be taken about not jumping too many times or with low interest rate differences. A heartening detail though is the removal of prepayment penalty. This can definitely boost the prospects of a home loan switch easing the cost burden for the loan borrower further!

Do remember that property verification and other legal paperwork will have to be done afresh in the case of a loan transfer. Also, for a loan transfer to be effective you should have a clear track of having cleared all the EMIs on time, every time.

Increasing the EMI

This is another option to close the loan faster. If you can spare a portion of an increment to increase the EMI, considerable saving could be made. For example a Rs.30,00,000/- loan for 20 years will need an EMI of Rs.28,950/-. If you can spare an additional Rs.2,300/- per month, the loan can be closed in 15 years itself.

The EMI can also be increased by making use of money that was going into an endowment insurance plan or a recurring deposit in a post office.

Increasing the EMI can be done at any point during the tenure of the loan. There are generally no charges for increasing the EMI.

Summary

Only after closing the home loan does one really become the owner of the house. Closing the loan as soon as possible not only relieves the mental strain of carrying a debt but also releases more money into the family budget.

An Assumption on behalf of the reader: we all know that children need to know the ways of money and it should not be left to destiny or to be learnt by trial and error later on in life.

“what and how to teach your children about money” – Winston Churchill’s famously quoted – “I love to learn, but can’t say the same thing about being taught.”

With children and more so with teenagers it is never easy to “teach”, they simply don’t want to be taught. But they should just know. They should know about money.

Yeah, but what is that, they should know about money?  Your child should know that

-          Money is a scarce resource and has to be used judiciously

-          Money has to be earned and doesn’t come free

-          How much you want and how much you have will not always match

-          Money is really not everything. It is important but not the only

important thing in life

You’ve to get them to learn, by themselves in an easy and fun way, so they own it up, take pride and practise. And with something like money, which can be a bit tricky, sensitive and sometimes dangerous how do you do this effectively without sounding preachy?

The answer is a well designed and executed “Allowance Plan”! Give your children pocket money. Now, don’t jump off your seat. Read on…

Children who are ten years of age are ready for an allowance plan. Regular (monthly / fortnightly / weekly) allowance money can be given to them that they may use to handle some of their expenditure. How much money will depend on what all expenses they will handle.

For example: One could start with some basic expenses like say, snacks after school. The child may want to buy a drink or grab a quick snack from the canteen during or after school. Sit down with the child and find out how much he normally would spend on this snack every day. Let’s say he spends Rs.20.00 on the daily snack. For five days in a week he would spend Rs.100.00. So every Monday you could give him Rs.120.00 (20% extra for the child to use his discretion on what to do).

Now, it is simple, instead of giving him Rs.20.00 everyday or whatever he asks for now and then, you are giving him Rs.120.00 every week to manage his snack expenses. If, he tends to spend more on the snack because he has more in his pocket, well, he will learn that money is a scarce resource when you say “Sorry, this week’s quota over” if he wants a replenishment middle of the week. You could gradually increase the amount and the expenses he may handle himself.

The allowance could be linked to some chores in the house. All basic work, like putting away her books and keeping her room clean are to be done anyway and cannot be linked to allowances. But some work which generally children are not expected to do – like clean the insides of the car once a week / clear the table after dinner and put away washed vessels / soap and clean furniture once a fortnight can be linked to allowances.

You will have to insist that the work be completed 100% to be eligible for allowance. Shoddy work should not be condoned. A sense of seriousness has to be instilled in the process. This will teach the child that money has to be earned and understand that time and effort goes into earning money. But tread the line carefully so as to not permit the child demand money for small helps -  like you ask your child to make you a cup of tea after a tiring day, she shouldn’t be asking for money to do so.

Encourage the child to put aside money as savings for planned larger expenses like if her friend’s birthday is round the corner and she wants to buy a gift, she can put away part of her allowance starting 2-3 months in advance to cover up the extra expenditure. In any case she does get a bit more than what she absolutely needs. And sometimes skipping snacks or buying something less expensive is not too bad either. The 3 box idea is a good one too. Keep 3 transparent boxes and name them “SPENDING” “SAVING” “SHARING”.

The allowance once received is split between these three boxes, say Rs.100 for spending, Rs.10 for saving and Rs. 10 for sharing. The saving box is to be used for planned expenses and the sharing box can be opened and the contents donated to a nearby orphanage or animal care centre – whatever cause your child is passionate about. Make sure to collect a receipt in the name of the child and safe keep it. Imagine the child’s pride for having contributed her bit.

Tell the child what not to do with the money so earned. Like he cannot use it to buy anything dangerous or cannot use it to bully or belittle others. But do not tell the child what to do. He should be permitted to do what he wants within large boundaries. He can experiment with speculating or lending to others. If it goes wrong he learns from it. You may however want to review with him once a month what he has been doing and what he has learnt from it.

Whatever goes right, whatever goes wrong, learning is a continuous process for both you and your child. Enjoy the journey. But always remember – “Allowance is not the child’s birth right. It is only a tool to learn how to handle money”. With the right rules in place, the right amount of freedom and the right example set by personal behaviour your child will learn lessons on money that would stay for life. Good luck.

This is a card that works like plastic money, where you can make purchases with a quick swipe, just as you would with your credit card. You can use it at ATMs and recognised VISA enabled points of sale, is prepaid in nature and can be loaded with dollars, euros or pounds, but can be used in the local currency of any country you visit.

Ever travelled to another country and found that you’ve run out of foreign exchange, or had the misfortune of having had your traveller’s cheques stolen? What about when you go to different countries, and have to change from USD to Pound Sterling to the Euro? Fazed by all the rates of exchange? Not quite sure how much you’re losing with each transaction? Don’t lose heart.

In these times of instant cash and virtual travel, the multi currency card might just be the ticket.

What is a multi currency card?

This is a card that works like plastic money, where you can make purchases with a quick swipe, just as you would with your credit card. You can use it at ATMs and recognised VISA enabled points of sale, is prepaid in nature and can be loaded with dollars, euros or pounds, but can be used in the local currency of any country you visit.

No more hassles with finding money exchanges, cashing traveller’s cheques, or carrying wads of cash. We’re talking anytime, anywhere, instant access to funds.

Who is it for?

The companies that have launched the multi currency card have targeted the high-end traveller, with plans to expand nationally.

Advantages of the multi currency card

There is, first and foremost, the convenience that this facility affords: you can pay in the currency with which you are most familiar, which means your shopping experience is positive from a financial aspect, because the decisions you make will be confident, and informed.

There are no surprises with the multi currency card – what you pay for on your travels, is what is reflected in your card statement, exactly.

Unlike the credit card, there is no transaction fee associated with any transfer, exchange, or purchase. In fact, the annual fee on most international credit cards is much higher.

With credit cards, the rate of exchange applied is the day’s rate, which might not be favourable. With the multi currency card, the rate of exchange is fixed the day you purchase the card.

And the security of your cash is stepped up, because the card is protected by a secure PIN (Personal Identification Number) which prevents anyone else from using the card, even if it is lost or stolen. If you do misplace your card, all you have to do is call the respective company’s Phone Banking numbers, for a replacement card to be issued within 48 hours.

While Travellers Cheques are accepted only at select locations for purchases or encashment, multi currency cards are accepted everywhere Visa credit and debit works. You can use this card to withdraw cash in the local currency wherever you are.

You only spend what you need so you don’t have to carry any extra cash.

For retailers, it means an increase in sales, opening up markets where the dollar and the euro don’t hold sway (such as small towns and villages for local handicrafts), and a reduction in customer service inquiries.

The retailer enjoys the added benefit of customer loyalty and building relationships with repeat customers.

Some multi currency cards also offer great deals on air tickets, holiday packages and travel insurance (including lot card, and lost or delayed baggage), making it a sweet proposition all round. The paperwork to acquire a card is at the minimum – all you need is a copy of your air ticket, a valid passport, an A2 form, and your PAN card details.

You can now enjoy unsurpassed global acceptance, and easily pay for hotels, airfare, train fare, car rental, dining, entertainment and more, anywhere in the world, all on one card.

Home buyers are always looking for the best home they can buy with the resources and time available with them. Now, more than ever, real estate prices are subdued and buyers are again active in the market.

Buying a home is the most exciting and at the same time, tedious task for people. While the excitement of owning your own home pushes you harder to expedite the process, the tedious task of going through enormous amount of details frustrates you. Going through the process is a necessity. Though the process is tedious and demanding, any negligence on the due diligence can cost us big in the future.

In this article, we will take a look at some options that home buyers have and how they can choose the best one based on their requirement.

Buying an under-construction home

This is the most popular way of buying a home. A builder announces a new housing complex through newspapers, TV, or any other media. Agents start going around the market, companies, malls, and even homes of people to advertise the same. The goal of the builder is to sell as many as possible before the housing complex is built. In fact more than 75% of the flats of known builders are booked even before a brick is laid.

The advantage

Cheaper – Buying an under-construction home is cheaper compared to buying the one that is already built or about to be built. The cost difference is significant. In the Delhi and NCR region, a ready to move flat with 2 bedrooms that costs home buyers about 40-50 lakhs can be bought anywhere in the range of 30-40 lakhs while under-construction, depending on the location. On an average, the difference is anywhere between 20% and 40%. This is a big difference for majority of the home buyers.

Low EMI – The EMI is paid as the work progresses hence the initial EMIs are low in the case of an under construction home.

Win-win situation for buyers and sellers – Buying an under construction home is a win-win situation for both buyer and seller. The seller gets a ready set of customers even before he starts laying the foundation while buyers get the cost benefit.

High returns – Since the prices are lower, you may get higher returns on the under-construction home. This kind of return is not possible in a ready to move home. However, high returns come with high risks. To give an example, people who invested in Noida authority plots earned high returns while people who invested in Samshabaad in Hyderabad are still waiting for the area to pick up.

Caution Points

Risk is high – All is not so well in under construction home buying though. There have been cases where builders could not complete the housing complex and buyers lost the money. Real estate sector is full of such stories where the builders could not complete the property because of cash crunch, high interest rate, and high raw material costs.

On the other hand, the market outlook may also change like how it happened in Samshabaad in Hyderabad. Samshabaad was supposed to host the largest Infosys campus, a chip factory, few engineering & medical colleges, banks etc. but none of it happened due to the 2008 crisis.

Many times, you don’t get what you are promised – This is another common complaint the home buyers have. They usually do not get what was promised in the documents. What is distressing is the carpet area that buyers get once the home is constructed. The carpet area is usually 70% of the super built area. The illusory swimming pool may never come up.

Important Points for buyers of under construction homes

Buyers should also check the past history of the builder. If the builder has done great in the past, chances are very high that he will repeat the same. However, if the past is checkered, rest assured history will repeat itself. Hence the track record of the builder is of paramount importance.

Buyers should clarify loan tenure and how the money will be released to the builder. Typically it is completion based.

Buying a ready to move home

A new trend is observed in home buying since the last couple of months. A good number of home buyers are slowly shifting towards moving to `ready to move’ homes than buy an under construction home and wait for a couple of years to get the possession. The reason is not hard to guess. Since the economic slowdown in 2008, there have been many cases where builders could not complete the housing complex and buyers had to wait helplessly. There have been many such cases.

The advantage

Immediately Available – Investors do not have to wait to move to their new home as it is ready and all buyers have to do is to pay the money, sign necessary documents, get all titles and required documents and transport their baggage to the new home.

Either EMI or Rent but not both – In the case of ready to move, you just pay the EMI. In case of buying under construction home, you have to pay the EMI and live in rented apartment till you get the possession.

You get what you see – In the ready to move home, you get what you see. Since the housing complex is ready and there are people living there, getting feedback about the area, maintenance, locality, shopping centers, and utility centers become easy.

Caution Points

The biggest negative of ready to move home is that you will have no idea of what went on behind the scenes, i.e. in terms of materials used, in terms of strength of the foundation etc. If the maintenance is shabby, the house can start to look old in no time!

Also, the price of ready to move home is about 25% higher than the price of under-construction home.

Important Points

Ready to move homes are generally more expensive but do not take this as gospel. Do your research; speak with a few people in the locality to find out the fair value of the home.

Group Buying

Since the last couple of months, many new companies such as www.groupbookings.in have encouraged home buyers to form a group and thus increase their bargaining power. Once the group is fairly big, the group buying companies will negotiate with builders on their behalf and get extra discounts. Essentially these companies act as a mediator between the builders and home buyers.  For builders, giving extra discounts is not a problem because they are saving big in advertisement and sales force.

The Advantage

Group buying empowers home buyers to negotiate better with the builder. The group home buyers usually get a better discount than what they can get individually.

Caution Points

In group buying, an individual buyer doesn’t make much difference and hence group’s interest takes priority over individual’s choice.

The down payment usually is higher.

Important Points

The buyers should study the documents carefully. Don’t assume that someone is reading these documents. You will be surprised to know that everyone has the same assumptions.

Group buying of homes take time and hence you have to be patient about it. The group buying company has to build the group, and negotiate the price with the builder for additional discounts. These activities take time.

Buying run-down homes

This option is not yet popular in India but slowly picking up. Essentially buyers choose to buy a rundown home at dirt cheap prices.  Once the house is yours, you can fix it and spend some money to get it up to date. This can fetch a better value in the market and the investor can make a killing in profit.

The Advantage

The houses are much cheaper even when you add the cost of repairing the house. Run-down houses are generally row houses and hence you get the land with it too.

Caution Points

The look of run down houses can be deceptive. You may have thought how must it should cost to renew but when you start to repair it, it may exceed your cost estimation.

Important Points

Unless you have experience about this field, do not venture into it. You may end up buying a worthless property in an area where people are migrating from.

What should you choose?

Your choice should depend upon your financial condition, timing, and your choice of location. Location is the most important factor in real estate.

If you are ready to wait, can take medium to high risk, and do not care much for location (in terms of being near to the market etc.), you can go for booking an under-construction home. You can even go for group booking if your requirement is to stay with people of your social standing.

If you cannot wait and cannot take high risks associated with under-construction homes and need to be near  amenities of your choice, try to find a ready to move home or go for a group buy.

Once while chatting up with a friend over tea and hot pakoras, the talk moved towards how expenses have shot up and how difficult it was getting to manage our family budgets. My friend just shrugged and said, “Well, those are concerns of my wife. After all, she is the finance minister of the house”.

Yeah, most women don the role of the finance minister of the house apart from the cook, housekeeper, the errand girl and more! However, just like every government’s finance minister, the home based finance minister comes in different types too. Some are functional, some are innovative, some are aggressive and some are just nodding dolls. What type is the finance minister of your house?

All families can do well with an efficient and innovative finance minister and this is how you can become one:

-          First things first – by being organised

Four types of expenses happen in the household.

• Compulsory, non-negotiable expenses like the rent, school fees, groceries, electricity bill etc.
• Discretionary, variable expenses like eat outs, holidays, clothing and grooming, religious etc.
• Loan repayments
• Savings and investments

An organised finance minister has an almost clear idea of how much goes into each of these categories and allocates separately.  For example: EMIs are paid out of the husband’s salary account because he has to claim tax deduction for the same. Savings and investments happen out of a common savings account jointly held by husband and finance minister to give better control and flexibility. Compulsory expenses are settled at a specific time of the month always and paid using cash, debit card or in a disciplined manner the credit card. Discretionary expenses have a predetermined budget and are usually only handled in cash.

-          A creative finance minister will find scope to improvise in each of the above heads. Most compulsory expenses can be planned for.  Like, the school fee comes in the month of April/May and so it does every year. A bit of pre – planning can help tide over this big-ticket expenditure with ease. For regular compulsory expenses, the brown cover technique (where money required for every expense is neatly put away in their respective envelopes) is most useful. There are ways to optimise interest payments on loans. Good bargaining and searching for the best deals can help keep discretionary expenses also in control and many more…

-          Apart from the above, a smart finance minister keeps books of accounts, knows for sure how much the vegetable vendor owes her or how much advance the maid has taken that should be deducted from her monthly salary. Not from her memory which can be disputed, but in her books – clearly written with date, amount and if possible signatures.

-          A ready reckoner list with all payments to be made, to whom, how much, when, how long etc. should remain handy in the top most draw of her closet. Not a payment missed, not a day delayed, not a cheque dishonoured can mean a lot of saving in terms of interest, late payment fee, charges, penalties etc. And of course, an impeccable credit record too for the family and all those living in the house. (Btw, did you know  if a bank’s database shows up your address if a defaulter lives in the same house as you do – this cannot augur well for you – when you opt for a loan?)

-          How many instances have we seen that one person worries about the daughter’s wedding while the spouse fancies the latest model mobile phone / car? An instinctive clarity on what is important and what is not a great asset is crucial for the family’s finance minister. A focus on the family’s financial needs both short term and long term will help in prioritising savings and investments over impulsive, indulgent spending.

-          Just like how the country’s FM has to work together with the RBI governor, SEBI Chairman and others in the finance industry, the lady of the house needs to be friends with the banker, should invite the insurance agent for tea and network with the different people who are instrumental in carrying out the family’s investments, loans, insurances etc. This comes easily to most women and will turn out to be very helpful in getting the best deals and come good during the most unexpected moments

Overall, a well-informed, organised, diligent woman with clarity of goals and networking skills would make an amazing finance minister of the home. If you are reading this, you are on the way to becoming one. Good luck!

The supermarket may contain everything under one roof, but if you spend a little time comparing prices, you will find that local shops carry items of the same, or better quality, and at better prices. You’re also assured of freshness if you go to the market.

Where does your monthly salary go? Do you allocate a certain amount to be spent on the house, or is it a case of buying things as you need? Did you know that there are huge savings to be had from maintaining a budget, and not just in terms of cost?

What is household budget management?

Managing a budget for your household is more than just keeping track of all the expenses for the month. It is a chart of how much income there is, how much will be spent, and what can be saved. The idea of the budget is to broadly plan for living within your means. A budget ensures that bills are paid on time, household debts are cleared and savings goals are set and achieved.

A really simple way to do this is to label different envelopes with the heads of all the recurring expenses of the month (such as rent, electricity, help, car EMI, etc.). You then know exactly what is going where, and if there is any left over, it can either be carried over to the next month, or set aside as a saving.

You could also project your monthly income and create accounts from which to debit or credit money as bills are paid and income is received.

Where do you start?

• Begin by making a plan

Create an inventory of needs and wants, from the biggest to the smallest. Learn to differentiate between needs and wants; those things that are essential to living, and those that make your life better. Categorise between non-negotiables (such as food, rent, clothing, education, transportation, and insurance) and everything else. Or further divide into what is necessary, what is adaptable, and what is expendable.

• Select an appropriate budget format.

You can download these for free from the Net, or create one of your own. You need to ensure your spreadsheet works on a monthly cost basis, so all income and expenses should be multiplied or divided to fit this calculation. A weekly expense should be multiplied by 52 (weeks in the year) then divided by 12 (months of the year) to get a monthly equivalent figure. A quarterly bill should be divided by 3 to get a monthly amount etc.

• Track your expenditure for a month to establish your spending pattern.

This also allows you to prune out those things that can be classified clearly as ‘frills’.

• Become a conscious spender.

Now that you have an idea of where your money goes, you have to actually keep that in your mind while you spend. And set aside time to review your finances and expenditure on a weekly basis.

• Go local.

The supermarket may contain everything under one roof, but if you spend a little time comparing prices, you will find that local shops carry items of the same, or better quality, and at better prices. You’re also assured of freshness if you go to the market.

• Prepare for the unexpected.

Car repairs, medical costs, weddings and birthdays, appliance maintenance, emergency travel, all qualify as additional expenditure, which you can actually plan for with the help of your spreadsheet, now that your finances are clearly laid out before you.

Reassess the budget after one month, making any adjustments that are necessary. Assess again after three months.

Making and maintaining a good household budget: Tips

• Share responsibility.

If you have a family, then it’s very important that they know and understand how income is distributed over the month, and what it is you are working towards. You can even ask your children, if they are old enough, to contribute to the budget. You will be surprised at the innovative suggestions you will receive. Most importantly, you have buy-in.

• Set targets.

Save money on a monthly basis to achieve your target, whether it’s a high end mobile phone, or a holiday. Don’t succumb to instant credit card purchases or EMI payments on the smaller stuff. In fact, put away your cards and stick to cash.

• Think out of the box.

Emergencies are natural, and you will find yourself strapped for cash at times. The point is not to panic, but figure out a way in which you can spend less, save more, yet continue to live in the manner to which you are accustomed.

• Review what you want.

Differentiate between what is meaningful, and simply ‘keeping up with the Joneses’. Continue to do this often, because your desires will change, as you grow.

• Be flexible.

A budget is not meant to tie you down; rather, it gives you defined economic freedom, not financial restriction.

A good budget allows you control over your money, helps you enjoy rather than worry over it, makes spending more purposeful, and protects you from financial problems.

Traveling by Rail Gets Costlier with the Advent of the New Financial Year

Traveling in the most prominent transport medium, the Railways, is now costlier, as hiked passenger fares and freight charges effective from today

The Indian consumers have been a troubled lot in the recent times, and have faced the heat of the global economic slowdown reflecting on the Indian economy. The advent of the new 2013-14 financial year doesn’t seem to be so rosy either, as hiked rail fares including freight charges are all set to take their toll on the average Indian, from the 1^st of April. The hike is targeted at the revival of the cash strapped Indian Railways, as it is estimated to generated a total revenue of around INR 5000 Cr.

The passengers travelling in the sleeper and the second class will have some respite though, as the increased reservation fee and the superfast charges are lesser as compared to the ones levied on the higher classes. The reservation fee remains unchanged for the sleeper class and the second class, while for the varied AC classes, it has been increased by up to INR 25. In case of the Superfast charges, the hike is stipulated to be at INR 10 for the sleeper class and the second class, whereas for the AC classes it stands in the range of INR 15-25.

The Tatkal fee is the big one, which has been increased by 10% of the basic fare, for the second class, whereas for all other AC classes it stands at a whopping 30%. Cancellation and Clerical charges have been hiked by up to INR 50 for confirmed tickets, citing the bulk booking which agents and miscreants indulge in, as the primary reason.

It is clear from the moves of the supposedly ‘proactive’ government, that the lack of proper governance and a vision for the Indian economy is being compensated for, by levying unnecessary charges on the Indian masses which is causing them to infuse their hard earned money in gaining access to some of the most basic facilities, such as public transportation.

Quick-quiz. Match the place of residence given below to the following men.

World’s Richest Man – Carlos Slim

World’s Second Richest man – Bill Gates

World’s Third richest man – Warren Buffet

World’s Fourth richest man – Bernard Arnault

Where do they stay?

1. World’s Largest House
2. World’s 2^nd largest house
3. World’s 3^rd largest house
4. World’s 4^th largest house

Answer: None of the answers given above matches the place of residence of the men given above. Isn’t that so odd? The richest men not living in the biggest houses. Then, what is the use of having so much money?

The shocker: The 3^rd Richest man in the world stays in a five bedroom house brought in 1958 and that today is valued at around USD 700,000 (although this works out to Rs 3.5 crore if we take the current exchange rates, it is only around a crore in PPP terms). Today almost 10% of Indians would be having a house in excess of Rs 1 Crore.

So does that mean that Warren Buffet is a miser? With over $50 Billion in wealth, he still stays in a 53-year-old house that too with “just” five bedrooms. He surely must be bluffing about his wealth, because, we know for sure he is not bluffing about the house! Or is he? Well not at all. His known public wealth is 50 billion dollars and growing.

So why does the world’s third richest man stay in such a small house?

No, Warren Buffet is not stingy or miserly by any means; not anyone who donates 30 Billion to charity can be one. Rather, he has mastered the art of creating wealth.

Wealth is not created just by investing, but, also by avoiding unnecessary expenses. It does not make one stingy, rather, it makes him frugal. This frugality has helped him grow his wealth year on year.

His logic is simple: An extra ten rooms in the house is not going to create any major difference to him. However, the same money if invested rightly (of which he is a master) can be made to grow to probably ten times the same amount.

Yes, it is not easy for all of us to be like him. Others might say that he can “afford” to be frugal because he already has so much wealth and does not need to worry about anything else. True, but he has stayed the same way even when he was poor!

If Warren Buffett can do it on such a large scale, we can at least do it on a smaller scale. The secret lies in falling in love: In love with growing wealth. If you can fall in love with the happiness that one gets by seeing his wealth grow, you will automatically start repelling the evil twin: spending.

Initially it may be very difficult and you may not even be able to follow. But, once you get accustomed to it. you realize that the pain of sacrificing current consumption is much smaller as compared to the thrill of creating long term wealth. The 20,000 Rupees saved by going for a simple phone (rather than a gold studded one) can in the coming years grow into Rs 200000/- and give you the power to be a giver.

The fundamental is to make sure we give priority to the needs and minimize the wants. Happy frugality.