Personal Improvement Blog
financial planning
Manage those Irregular bills – how I do it
Jul 8th
Irregular Payments. I use this term for those bills that don’t occur with any definite period OR happen once in a year. Think Car insurance (and house taxes, annual maintenance etc). you get the idea.
Our initial family budgets used to have expense items for the month and we did those at the start of the month. We got wiser and then started having a standard set of items and approximate amounts for each month. We could then compare every month how we were doing against the “standard.” After a few iterations, we realized that our balances did not match what we spent (against the budget!).
The culprits were these irregular payments. What was causing even more pain was that to pay for each of these special items, we were scrambling at the last minute to make the payment (which was usually large). A few brainstorming sessions later, we came upon a few tricks to avoid such situations.
1. Create a timeline 
We made a list of all the possible payments for the year. These included
- Insurance payments
- House and maintenance taxes
- Car insurance
- Term fees at school for the kids
Then we put up the dates on which these payments were due. We observed that, by pure luck, there were not more than one payment on any month.
2. Reschedule Payments
If, by any chance, more than 2 such payments fall in the same month, you might want to consider moving them to another month. This may not always be possible, but there may be some payments which can be moved. For example, you can switch your annual premiums to a monthly schedule for a couple of months and then switch back to an annual schedule.
The key is to schedule them such that those months don’t bunch up together. There will be a bit of inconvenience when you set this up, but it may be good in the long run.
3. Schedule micro-payments
Once you have the calendar schedule of payments ready, you can move on to the really important step. Schedule micro-payments every month for such irregular payments. Some banks in the US, such as ING Direct, allow you to create sub-accounts within your main account. If, like me, you live in a country where these are not available yet, you can put these micro-payments in a single account and track them in a simple Excel spreadsheet. It is important (and obvious) that this “special” account must be different from the account that you normally use.
These micro-payments go into your budget like any other item, so that you don’t end up messing up your budget in those months. This is especially true for those people who don’t have a set income every month (like businessmen, independent consultants etc).
Bonus tip: Start these micro-payments in such a way that you have a sizeable amount for each payment. Also, for one or two payments, this may not be possible in the first year, but for the subsequent years.
Share your tricks and tips for managing home budgets in the comments.
The 3 Pillars of Financial Planning
Mar 6th
In these days of financial troubles everywhere, I am thinking a lot on improving my financial situation and hence you may see most of the posts are on personal finance
“Insure your Child’s Education AND SAVE TAX”
“An insurance Plan for your golden years”.
These are the headlines screaming from Billboards on the way to work. I can’t help, but cringe when I think that I have fallen for these ads earlier in my career. One day, it struck me that there are 3 components to managing your money in the short and long term. I call these the “Pillars of personal financial management.”
Wealth Creation
By Wealth Creation, I mean creation of a corpus for all your major needs in life This includes planning for an Emergency Fund, Children’s education, lifestyle improvement (home/vacation), retirement etc.
Insurance
Insurance is a de-risking strategy that allows your dependents to maintain the same lifestyle if, God forbid, something happens to you. When I say insurance, I am talking of pure risk cover with no (or very less) money-back policies.
Tax Planning
Planning for saving tax simply frees up more money for you to spend – either on yourself, for wealth creation or for insurance.
How they are related
Tax savings can lead to wealth creation or insurance. Wealth creation, such as investing in PF or mutual funds and Investing in insurance can provide tax savings.
Experts advise to keep these three separate, but as I said, most financial products try to combine these options. By itself, that is not bad, but these products are linked to the market, which means you are putting your money at risk! If you retire and there is a recession like the one we are in now, all your savings are lost unless you have chosen the most conservative option. If, like me and most others, you have not actively managed your risk option inside these products, you are liable for a shock.
Only a good financial planner will help you assess your financial state, expectations and create a comprehensive plan that will maximize your wealth, while saving you taxes and de-risking you through appropriate insurance.
Disclaimer: I am not an expert on finance – information and tips here are for sharing my experience and your understanding only. Please consult a qualified financial planner for any financial decisions.
Related Posts:
Following my own advice – Emergency funds
Aug 7th
After writing so much about having an emergency fund, I find that my own balance is not enough for even one month. Currently, both me and my wife work, but due to the high mortgage for my home, our pay is just enough to pay all bills.
Thankfully, we have been able to meet our commitments for previous investments, but we have not made any new ones this year, which is a cause for worry.
I am expecting some surplus this month and should be able to transfer a wee bit to the EF this month and move it over the 1-month level.
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 
]
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.