What does a financial detox look like?

I was looking at my Instagram feed. My friend Manisha’s new post popped up. It was a photo from her off site. I thought to myself, “she looks resplendent”. Within a second, my watsapp was open and I was typing to Manisha. She was online and infact relaxing on a hammock under the evening skies. The breezy beach after a day of team building exercises was her only company at that time. We got chatting. I was happy to see her look so great, and told her so. She sent me lots of love. The next thing I asked her was how were things with her. She instantly knew what I was checking about and took the effort of replying in detail. She mentioned that she sorted her financial mess, quit the workplace nearby that made her feel a persona non-grata and joined another place at a far senior role. Travel is a bitch but she is in a deserving place finally. We said our bye-byes and fixed on the coming weekend to meet. Manisha, my friend had given me a panic call 4 months back. She had meagre savings, no major investments (an FD, a life insurance policy and a PPF), a home loan, a car loan, 2 high limit active credit cards. She lived an enviable lifestyle, drawing an earning of around Rs. 20 lacs per annum. Her husband’s salary was also a handsome figure. Between the couple they had split spends. Running expenses, children’s quality education and annual travels went to husband while Manisha helmed the responsibility of saving and investing. One day, they had had hosted family friends who asked them how they managed their portfolio. Both Manisha and her husband were flummoxed with the question, to say the least. That evening, I got the call. We met the next day. It took me half a day of discussing and questioning Manisha about her income, expenditure, assets and liabilities. Having gauged the depth of her situation, I made this recovery path of sorts and gave her to follow. Over the next fortnight, we got a lot of it implemented.

  1. Streamline Expenses
  2. Get rid of debts
  3. Define goals and invest for them

Let me touch upon it in some more detail so it could be of some use.

  1. Get your lifestyle on a budget

First up, I understood from Manisha what were her usual expenses like, how indispensable were they. In her case, there was a lot of impulse spending. Her credit card was swiped at the drop of a hat. There was not an iota of planning with money. Her credit cards had high outstanding amounts. We assessed her inflow and outflow and created a monthly budget to follow. Manisha was put on credit card detox with immediate effect. She also cleared the outstanding from the balance in her salary account. Here’s a tip. When you want to stay off credit cards, you can start spending in cash. This is what we did with Manisha. Using cards doesn’t give an immediate sense of losing money and therefore it’s much easier psychologically, to spend.

2. Say no to ‘em expensive loans Living in debt is the most hazardous way of living. The first step to financial semblance is getting rid of expensive loans. And like Manisha, when you have multiple loan accounts, you have to start with the most expensive loan – Credit Card. Next was the car loan. We did a little math here. She was half way through her loan. Fetching an 8 percent annually on FD was a sub-optimal choice. She was paying over 10 percent rate of interest on car loan. It took some convincing but Manisha had little options remaining. She discontinued her FD and closed her car loan account. Next was a joint home loan by her and husband. It was a rather large amount to pay up, plus the couple was getting tax breaks on interest amount as they both were in highest tax bracket. So, the home loan continued. But they decided to use their performance bonuses for the year to foreclose a part of the loan by foregoing their international holiday.

3. Don’t save. Invest. Merely checking your spends will never provide for future. It requires planning and consistency in investing, not just plain saving. We met a professional financial planner, who did a deep dive to arrive at what kind of monies they will require in future and how to achieve them. Their goals were bucketed in short and long terms. By cutting down on wasteful expenses, Manisha managed to save a considerable sum from her salary. All the money saved was pivoted towards well-chalked out goals. For short term goals, she invested money in debt funds. For long term goals, she started with equity funds. Manisha’s car EMI contribution was free now. The planner immediately started an SIP of the same amount. Manisha and her husband realized that their savings were much lesser than similar earning couples. They decided to increase their SIP amounts with every hike they would get. Having done so much of financial cleansing, they still were unable to work towards retirement planning. But it was now on their radar and in a year’s time they would get started on it. Meanwhile, I am not able to decide a place to meet Manisha. A fancy lunch never sounded vainer to me. Financial detox is very rewarding but not easy. Maybe, meeting for a walk or run would just be the best catch up.

Have you planned for your child’s future?

Diwali storms up the social whirlwig; food, dress up and meet up is all on cards. The usual worry of how to keep the kids gainfully occupied is thankfully averted during such catch ups. They find playmates and enjoy their time, which for us parents is a huge load off.

 This diwali, we too had some great fun socializing. A new parent couple among our friends got talking about how responsibilities are keeping them engaged. Life has been very different after their child’s birth and one responsibility they can’t get a handle on is money planning. More discussions among the group led to finding out that it is a rather widespread question, parents are grappling to figure. It obviously became imperative that a blog post covers the topic of planning our children’s future.

Before setting out on a task, we have to understand what is it going to achieve. So parents unanimously voted Education and Marriage as goals to work for. Both are gargantuan expenses and require disciplined action. Depending on your age, children’s age, your risk profile, choice of education field and costs involved you will have to ascertain a sum required after a said amount of time. We are mentioning the tools you can use for investing. 

SIP

When you keep a horizon as long as your child’s growing up years, SIPs in small to mid cap funds and balanced funds are your best bet. They let your money gain with the benefit of compounding year on year. For those with some risk appetite, consider funds which invest a considerable part in equities of growing companies. Balance funds are slightly less risky because they have equity and debt (such as term deposits, bonds) instruments both.

For the uninitiated, SIP is Systematic Investment Plan better known as ‘the good EMI’. You invest every month a fixed sum as small as Rs. 500 into a mutual fund. The fund is managed by a team of experts and they in turn invest in various instruments to generate returns. We have more posts on MFs coming momeys 😄


Sukanya Samriddhi Yojana
This has to be our favorite for those who have daughters. The scheme encourages parents to build a fund for the future education and marriage expenses for their female child. The scheme currently provides an interest rate of 8.3% p.a. (new rates are likely to be announced). It allows deposit upto Rs. 1.5 lacs in the name of your daughter every year and it matures when she reaches 21 years of age. You can either choose monthly or yearly contributions. Momeys should absolutely consider monthly contribution!

Insurance

Well it’s not our favorite, but we have to bring it into discussion to give you our reasons. If you search online for children investment options, you will find a gazillion ads by Insurance companies luring you with child plans. What should you do? Well our advice would be to ignore. They are mostly selling ULIPs to you which are far inferior in returns to mutual funds and charge expensive premiums. You might as well directly invest in MFs through SIP.

However, we have to add that you must take insurance, as life cover to safeguard your family and children in an unlikely event.

Gold ETFs

Gold ETFs are exchange traded funds that passively track the performance of Gold Bullion. These funds buy gold with investor’s money (on the behalf of investors) and convert it into units. 

Gold Exchange Traded Funds can also be an option if you want to invest for using them during marriage. These are traded on stock markets and are a great alternative to physical gold.

With children, you wouldn’t want to take a chance. So invest today for their tomorrow.

Millennial Mom

Have you often caught yourself saying, “Life’s one heck of a bitch right now”. Finding your plates too full or sometimes too much to juggle between – you must be a Millennial Mom.

Millennial Moms have unconventional jobs, role demands, work schedules, and therefore a much higher need to be financially savvy. We are doing a series on how Millennial Moms with varying roles should be dealing with money. Here’s the piece for our first role.

Role 1: Moms who run the Media

Graphic Designers, TV anchors, Executive Producer, Creative Directors, Director of Photography… These mom’s have challenging careers and work differently from regular employed workforce. The work comes in erratic shifts, for days at a stretch sometimes and sporadically.

Most times work comes on assignment basis in the creative field. While the pays are handsome, the receiving g date is not fixed like the salary. How can one then make the best calls in managing money. Here’s a practical guide.

Pay yourself first

Freelancers are very much like the entrepreneurs. It is important to reward yourself to keep going. Take aside your salary to last you your next expected payment before you use it up in clearing the dues.

Use apps to track your payment or follow ups

A hard part of freelancing is deferred payments which you have to diligently follow up. The right apps can keep reminding you for follow ups and keep a note of your money reserves vis a vis expenses.

Emergency fund

We can’t stress more about the need of emergency fund for everyone and its even dire if your pay-checks are irregular. Emergency funds can be limited for salaried individuals who have medi-claims and other cover. But it’s critical if you are independent.

Using the upfront payment mode

When making large purchases like car, camera and heavy equipments, prefer to use the upfront payment option. Since you can time the purchase after a big payment credit, paying lumpsum will earn you rewards like bigger discounts and cash backs. You also avoid the EMI headache and heavy interest rates charged on taking loan.

Don’t compromise on Investment

Not having regularity in payments should not become an excuse to not invest. Make lumpsum investments if recurring is not possible.

Financial Advisor

The financial terms may scare you or you may be very busy to figure the investment tools. Also in freelancing, there are no employee benefits like PF, Gratuity etc. you must engage an advisor to plan your insurance, retirement and other investments.

Get a life cover

A lot of people misunderstand Insurance as an investment tool only. While it can give returns but primary use of Insurance should be of covering your life. Absence of life cover and medi claim can land you in quite a spot in case of any uncertainties.