BANKBAZAAR TIP CENTRAL
How is your EMI calculated?!
At a constant interest rate, EMI is constant month on month. The change happens in the way the principal and interest is added every month! In the initial years of loan repayment principal is lesser than the interest component of the EMI. In the latter years the reverse is true!
The home maker and finances!
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!