Money Management

Money Management

By Dr. Lalit Kumar Setia 

"All our dreams can come true, if we have the courage to pursue them".  -- Walt Disney.

Everyone tries to manage his money with the help of investments, making fruitful expenditures, and exploring new sources of money. The superintendents in government department use the tool of budgeting to control the expenditures. The tool of budgeting expenditures leads to great quantum of savings and helpsin keeping control over wasteful expenditures. The people prefer to put money in Fixed Deposits, Recurring Deposits as these investment tools have lower risk than Debt-oriented funds. But in case of slowdown, the central banks start reducing the interest rates on Fixed Deposits and Recurring Deposits which the interest & return on Debt-oriented funds remain the same. How one should plan to invest in Debt funds?
What should someone do to manage money either coming through salaries or business incomes; requires art of budgeting. Let’s understand the tips and steps to generate more incomes and contain expenditures:

1.   Notice the sources of Incomes: 

One should build a book or write on paper regularly, the sources of income or money; from where he or she is getting money. A list of all sources should be noted down first and then try to explore how to increase the cash flow from such sources. One should try to build friendships, associations with individuals & corporate to increase the cash flows in life. After noting down each income and inflow of cash, one can build a sheet showing money in his or her hand in each coming month of the year. One can also plan new sources of earning money like through Google Adsense, through building more skills, understanding and using crypto-currencies etc.  

2.   Notice the applications of money or expenditures: 

Second step is to control the expenditures and it is possible by estimating the expenditures in advance. It should be tried to write down each expense in diary and then make a list of expenditures normally being done in life. The unfruitful or waste expenditures should be avoided by controlling the bad habits. The estimates of expenditures in each next month of the year should be noted down separately on a sheet showing the expected cash outflows. The expenditures may be divided into various categories like permanent monthly expenditures, occasional expenditures, and wasteful or unnecessary expenditures etc.

3.   Compare incomes and expenditures of each month: 

After pointing out incomes of each coming month in first step and expenditures of each coming month in second step; it is easy to compare the figures and chalk out expected surplus and deficits of each coming month of the year. The figures will tell the minimum surplus amount of each month. Suppose, a person is getting income of Rs. 60000 per month and his expenditures are nearly Rs. 30000 to 40000 per month; then he will become sure that he will have at least savings of Rs. 20000 per month. Similarly, each individual can compare the figures of incomes and expenditures and compute the minimum and maximum amount of expected savings in each month. There may be months in which it is expected to have more expenditures than incomes. For such months, he has to make provisions of savings in advance to avoid the situation of cash crisis.

4.   Planning investments or fruitful spending: 

After having comparative statement of incomes and expenditures, the surplus money can easily be managed either to set-off the months of deficit or to make investments for long-term. There are usually two options of investments in banks, post-offices, or other financial institutions i.e. Fixed Deposits or Recurring Deposits. The minimum savings of per month can be invested either in Fixed Deposit of long-term or Recurring Deposits as per the interest being offered. While deciding the option, one should also consider the tax-ability of the investments so that the take home salary can be increased. Like in India, the investments in Public Provident Fund (PPF) offers tax deduction and the interest is also offered reasonable. 

5.   Be Stick to Expenditures and control unfruitful expenses: 

After having everything in hand, one should become completely stick to control the unfruitful or waste expenditures. It depends upon the will power and everyone should try to restrict such expenditures to create more wealth in life. The expenditures on basic needs, should be made in smart way by getting benefits of sale, offers, and schemes being offered by the vendors; but keeping in mind the planned expenditures.

6.   Plan Entertainment and Joyful Activities: 

In case, there are surplus monies in each month and already enough savings are available; then one should plan to spend holidays, visit places of pilgrims or entertainment in hotels with family, and spend time in joyful activities. The surplus months can be planned to have such tours and travels in life and advance booking of tickets can further cut the expected expenditure on tour. One can take the membership of hotels and restaurants for long-term benefits being offered by them. 

7.   Use of Debit and Credit Cards: 

Everyone should avoid use of credit card, because it can lead to be extravagant and higher rate of interest is charged by the banks on credit cash used through the credit card. However, one should use debit card which gives facility to use own deposited money without imposing much charges. But the use of debit card should also be done is smart way. Keeping debit card in pocket and spending without any purpose is a bad habit and one should avoid it. Only fruitful and essential expenditures should be made wisely. If there are offers, sales, one should buy in bulk but not so much stock that cannot be used even in long-term. In order to curb such expenditures, one should invest expected surplus money in the first week of the month and then from remaining money in hand; make the estimated expenditures carefully.

8.   Plan long term expenditures out of matured amounts of Investments:

The investments are made for a specific purpose, the surplus amount deposited in Fixed Deposits or Recurring Deposits whenever matured should be spend only for further investments or long-term fruitful expenditures like marriage, starting new business, purchasing plots or vehicles as per the requirement.

9. Decision of investment in Fixed Deposits or Debt-oriented Funds:

In case of slowdown in the economy, when most of the central banks start to reduce the rate of interest on Fixed Deposits, people prefer to invest in debt-oriented funds. The investors also consider the fixed income securities such as Government securities (like Provident Fund investments), treasury bills, and corporate bonds etc. In Debt oriented funds, nominal charges are imposed for making investment i.e. Entry charges on each transaction. In Fixed Deposits, the return on investment is certain and can easily be computed but in case of Debt-oriented funds, either dividends are provided or profits are maintained by the corporate which led to appreciation in Net Asset Value (NAV) on which basis the value of Debt-oriented funds enhanced. 
One benefit of Debt-oriented funds in India, is that the income tax act provides exemption on tax if the sale proceeds of such investments are invested in a new residential house property subject to satisfaction of stipulated conditions.

Conclusion:

It is must to plan wisely to have bright future and get relaxed in long-term. One should further plan the old-age expenditures and retirement planning to stay healthy with sufficient money in his hands. It is fact that one person can easily gain more opportunities for earning money after getting more skills in his hand. The YouTube channels can be used for self education, online classes, and more. 

*Copyright © 2018 Dr. Lalit Kumar. All rights reserved. 

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