Personal Improvement Blog
Archive for June, 2008
Saving for the rainy day – Emergency Funds
Jun 30th
Life is unpredictable.
Your life is smoothly going on – everyday you go to work, come home and get a nice salary in the bank every month. One fine day, you lose your job, meet with an accident or someone in the family falls sick suddenly. You need a couple of months or maybe more to bring your life on track. If its you that Lady Luck has chosen to turn away from, what happens to the mortgage payments? Who will put food on the table?
The older generation has the solution – rainy day money. Or, in more fashionable terms, emergency funds. This money that you squirrel away in small amounts in a separate savings account that frees you from the temptation to use it.
How much should I set aside for emergency?
Sorry for not being able to give a definite answer, but I have to tell you, "It depends."
You have to assess your risks and dependencies to arrive at a figure. If you have a partner who also works and earns, this could be smaller, but if you are the sole breadwinner for a large family (with kids), you might want to look at a larger amount.
Any Rules of Thumb?
The usual notion is 6 months of your monthly expenses (including mortgage payments etc). Start small, say 1 month, and put some every month. You could also put a part of any surplus money you get into it. A friend of mine has a hobby that he works on the weekends. Selling what he creates as a hobby has given him a small "side income" that he uses partly for emergency funds and partly for splurging!
I plan to keep aside 2.5%-5% of my monthly salary into a separate account. My financial planning was non-existent earlier and bringing it on track has exhausted my finances, especially since we bought a house on mortgage recently. This is one area where I have not made progress.
Resist the temptation to invest
While most financial advisors agree with emergency funds, some may say it is opportunity lost in earning more. Beware and remember that this fund is meant for easy liquidity. Investing it into stocks or mutual funds locks you into a long-term commitment and defeats the purpose.
Do not go overboard either, by keeping too much of money here. Saving is easy; finding the right balance and sticking to it is the hard part.
Once when I was playing Monopoly or Business (or whatever you call the game where you buy places and build houses), my friend used to put away a few bucks under his seat when no one was looking! I now know he was planning for emergencies.
Do you have any experiences where you or people known to you have secret places to store some money away? [Moms storing cash in kitchen stores come to mind 
]
Work-life Balance Part II
Jun 24th
Part 1 listed the variables of work-life balance in my years of work and reading and took a closer look at the first two.
- Set Boundaries
- Learn to say No and feel comfortable
- Earn credits
- Establish a support system
- Schedule vacations
- Identify and manage Peak times
- Become single
This post continues discussion on the things you can do balance work and life a wee bit more.
Earn credits
I learned this tactic or rather recognized it from Jack and Suzy Welch’s landmark book, Winning. Jack uses the term “chit system” to describe building credit with your boss and the organization. Other people use other terms (goodwill account etc).
When you stay late to ensure a project is completed on time, when you take on the work of a colleague who is sick, when you go beyond your job or task description, you earn credits. These credits can be used when you need them – to be with your children when they need you most or to be with your spouse when he/she is not well/pursuing her interests etc.
Jack goes on to give examples from GE when really good people who were in the system used this credit system to take themselves away from the race without being affected later.
Of course, this works only if you continue in the same organization. I, however, have a few points to add based on my experience.
- Do not volunteer for everything to build credit. Identify really critical times when the impact is hardest.
- The system will create peak cycles when you may not be with your family for an extended period of time. Choose these cycles carefully.
- Ensure people who matter know about your work. This does not mean you tom-tom it about every time you talk
- Be clear that what you think is credit is really that. You don’t want to end up using your goodwill or even worse, your boss’ goodwill
- Remember this works only if you genuinely accumulate credit and use it responsibly. All said and done, people want to be fair to you and the organization.
Establish a support system
This is especially important if your partner too is working outside home. When I talk to the high-achievers in my organization, I find that most have set up a system to ensure the house runs smoothly without too much involvement from them. Cooking, housecleaning, bringing kids from school, paying the bills etc are important considerations.
If you have to start early in the day to beat the traffic, while packing lunches for you and your children, you would have to make clones of yourself to do this. Getting up very early is not the answer – you need your sleep and you need some physical exercise. There is simply no time for it all!
Jack Welch also comments about this in his book and also makes an interesting statement – those who establish such a support system earn more (obviously), leaving them to do more in the day and grow in their work, allowing them to earn even more! People who don’t earn so much cannot afford such support and hence cannot commit much at the office. A vicious cycle that needs to be broken with better financial planning; otherwise, some become bigger while others remain where they are, leading to frustration and anger.
At the minimum, get someone to cook. This could be your parents/in-laws or some close relative who needs a place to stay for a while. It could free you to do things which improve the quality of life.
Do you have any tips to share or do you have problems in balancing work and life? Share it with us.
Colored Glasses – How perception alters behavior
Jun 23rd
You are right. This is a blog on self-improvement, not psychology. I’ll give you a little background so you will be able to understand the context for this post.
I was working in a small group that was part of a larger one. Even before I entered this smaller group, I was constantly told on how certain individuals were not ‘good’, they were selfish and used you to achieve their goals and then discarded you. This intensified when I joined.
I was infected. Being one of the core members of the team, I had to interact with these people and my impressions started affecting my relationship, even though they never did anything wrong to me. I was defending others whom I thought were fellow victims. I went to the extent of blaming others for my non-growth. I was allowing other people’s experiences and impressions to cloud my own!
Years of reading self-improvement books did not give me the mental clarity to see through this. It needed a good friend of mine, who was tired of my ranting, to bring me to my senses. I cannot forget that moment, when he looked into my eyes and gently said, "Hey, Don’t make your friends’ enemies your own!" It magically cleansed me of the poison that was spreading through my mental system. I felt exhilarated and then understood what people meant when they talked of the "Aha" moment.
I then used this insight in other areas of my life and then discovered that I held to some beliefs strongly without any experience of my own, just because someone whom I trusted and respected said so. That was my weakness – anyone whom I respected I automatically assumed them to be right always. Thanks to my friend, I understood that each person builds his/her own equation with others and unlike mathematics, one person’s equation may not be the same as his or her own. Removing such negativity from your inner being will release negative energy that saps you from achieving the most out of your life.
Examine your perceptions of the people you really dislike or really like. Are they based on your own experiences and facts? You may sometimes be surprised at the answer. If you have any such experiences, we would be glad to hear it.
Live well.
Create a Master Information document for Emergencies
Jun 6th
A few months ago, I saw a very large transaction on my credit card, which I had not made. I had to file a fraud report with the credit card issuer immediately to avoid charges. Unfortunately, all the information regarding that card were littered in different files and sometimes were not available at all. It was then I decided to create a repository of all important information. As I thought through this, I asked if this had more benefits than I realized.
Interacting with third-parties
We often need to have account information about our transactions when we deal with banks, insurance companies, credit card companies etc. It is helpful to have all the information at one place, so that you don’t have to flip through dusty files to find that small piece of information.
Family members in case of an unforeseen incident
Tragic incidents can strike anytime. Imagine you being in hospital and your loved ones dealing with insurance companies to get that critical funds for your hospital care. We definitely don’t want to add that trauma to our distraught family. Such a document provides them a single reference for all that vital information
All your assets and liabilities in one place
If and when you start thinking about your “net worth”, it would be good to see all your life’s important aspects at one place. It can help you de-clutter all that information that gets mixed up in the brain. There is a satisfactory feeling to see so much information in one place!
How to create the Master Information document?
Once I understood the power of this inventory list, my next thought was on the implementation – how do I set up this Master Information document? It had to be in a format that was easy to setup, use and update regularly. A spreadsheet was the obvious answer. I opened a fresh MS Excel document and paused,”what information do I need in each of the situations I have thought about?”
Back to pen and paper it was (this is a classic case of putting the cart before the horse). Once I had the structure clear, I transferred it to the Excel.
Information you might want to have in this document:
- Bank accounts – Bank Name, Account No., Branch, Customer Id, your Date of birth, mailing address, ATM/Debit Card No, ATM PIN, Internet Banking Id, Internet Banking PIN, Telephone Banking PIN, your email id, 24×7 Helpdesk Phone Nos.
- Credit Cards – Bank Name, Account No., Branch, Customer Id, your Date of birth, mailing address, 16-digit Credit Card Card No, Card PIN, Internet Banking Id, Internet Banking PIN, Telephone Banking PIN, Billing Cycle, your email id, 24×7 Helpdesk Phone Nos.
- Insurance – Name of Insurance Provider, Insurance Plan, Folio/Policy No, Customer ID, Address, Date of birth, Premium Amount, Frequency of Premium, Due dates for Premium (if not monthly), Contact No., Nominees/Beneficiaries. If it is a market-linked plan (ULIP), then you may have a choice of investment models (aggressive or secure investments).
- Home – Address, Registration details, Builder Name and contact no, Home loan provider, Loan Amount, % interest, Fixed/floating, EMI, post-dated cheque nos (drawn on bank).
- Car – Car Registration details, Number plate, Company Service centre contact No, emergency contact no, Car Insurance provider, Car insurance Amount, Insurance payment due date, Servicing details (Cumulative).
Based on your situation, you may want to add more information. Remember, it costs nothing to put in the information, but can save you much worry if you do it.
It took about 4 hours for me to find the information from all my files and papers and consolidate in the Excel. Once I was done, though, I was very happy with the output. my wife, who often complains that I am very disorganized in such things, was very happy to see this.
If you want to quickstart your consolidation exercise, you can download the template that I use from here
Some Notes:
1. Store this document very carefully, preferably using a encryption software such as TrueCrypt or AxCrypt. In the wrong hands, this document can be very dangerous.
2. Update this document frequently or there is the greater danger of this becoming obsolete. Greater because people will trust the information to be reliable when its not.
3. Due to reason 1 above, I am also not in favor of putting this document on the web. Say what you will, I am paranoid.
4. Create a backup every year and store the latest version in a fireproof safe. If the document has changed a lot, do this several times a year.
Doing what you want in life: Financial Planning
Jun 4th
As we continue to slog away days and nights in an increasingly futile attempt to have a “lifestyle” and “peace of mind” (contradictory?), there are times when we pause and think, “Is this something I really enjoy doing or I would rather be doing something else?”. Our home loans, children’s education and the next payment for that 52′ LCD TV stare at us – we shake our heads, hunker down and go to work.
This is what happens to me. If you can relate to this situation, then this site is for you. Over the past few months, I have heard the term “Financial Planning” being bandied about and in my search for financial freedom, I did some research and found that being financially independent means different things to different people. For me, financial independence means not being worried on what would happen if I took a break from work for a couple of months to do something what I want. My job keeps me really happy, but I need to get away from it sometimes.
If you have to drag yourself to work every morning or feel burned out, your goals may be different. But regardless of your situation, a little planning never hurts. Financial planning is the stepping stone to financial independence. A word of caution, though. It is not always about the money. This journey will have emotional consequences too. Fiscal discipline is hard if you or your family is used to instant gratification or a lavish lifestyle. You need to stay mentally firm to break these habits or all your planning won’t help you.
That doesn’t mean you have to live the life of a miser! Remember, the objective is to do what you really want to do by not doing the things that do not give lasting pleasure. A family vacation, for example, gives you emotional bonding and wonderful memories that last a lifetime. But an expensive game console, which you use rarely, but buy simply as a status symbol is not a good choice.
Financial Planning involves identifying your long-term and short-term goals, finding out what money you need to achieve them and then planning how to earn that money. A fundamental principle is “Earn more and Spend less”. While this seems common sense, it is exceedingly difficult to practice all the time.
Now that we have understood the concept and established a case for financial planning, I will discuss more about the implementation details in the coming weeks. In the meantime, do you do financial planning? If so, what factors do you consider and what strategies have you adopted? Let us know in the comments.
Live well.