5 STEPS TO BUILD YOUR OWN BUDGET
A budget marks the start of a new
financial year... for the government and you. While the finance ministry would
have started working on it long back, it isn't too late for you to create a
financial policy for yourself.
1 TAKE A FINANCIAL INVENTORY
The finance ministry begins the
exercise by collating receipts and expenditures from ministries and state
governments.You too should begin with taking an inventory of your income and
expenditures. Get hold of your bank account and credit card statements. Rent,
EMIs, insurance premiums, investments, petrol, gas, internet and telephone
bills are some of the big and easy to track expenses. Variables--grocery,
medical, entertainment, etc. will have to be tracked for a few months before
you can project averages. Once you have the numbers, get a budgeting app to
automate the process.
2 HANDLE DEFICITS
Now you'll find yourself in one of
the three situations--the income matches expenditure (meaning, you barely make
ends meet), you spend more than you make, you spend less than you earn. If you
fall in the third category, jump to point three. Others need to plug some
leaks. Look for the red flags--revolving card payments, EMIs, too many
financial commitments. Fix the debt problem first. Credit card interest rates
are steep, around 40% per annum. Also, outstanding balances spoil your credit
score.Try and negotiate the rate with your card issuer. Otherwise, transfer the
balance to a new card that offers a lower rate and request them to break the
outstanding into EMIs. In case of loan EMIs, rather than extending the loan
period, try switching to a bank that offers a lower rate. Next, clean up your
investment portfolio.
3 SET FINANCIAL GOALS
If you have surplus money piling in
your bank account every month, you immediately need an investment plan. Start
by identifying your financial goals and responsibilities. They can be both
long-term (retirement) and short-term (buying a car or higher education). Once
you have a list, calculate how much you need to save for each of them. Do not
forget to add inflation to the equation. Once you have a figure to achieve
within a set time frame it is easier to choose and earmark investments. In this
process you might also realize the need to weed out some unnecessary or bad
investments. Remember to have adequate insurance, most important being life and
health covers.
4 PLAN YOUR TAXES
As the FM announces new tax breaks,
align your investments to get optimum benefits. Don't randomly choose the
highest tax saving instrument. Go through your goals, select a category of
investment that suits your need, risk profile and then choose the best
tax-saving alternative. Remember, it's easier to earn tax benefits from long-term
investments. For instance, for your retirement corpus, you can pick from PPF,
VPF, NPS and pension plans, all can be listed under Section 80C.
5 MAKE CYCLICAL ADJUSTMENTS
Your budget is based on estimates
which change with time and situation.A hike in gas prices will mean you need to
cut back on some other expense. If you have taken a home loan or started a
family, you need to enhance your life cover, meaning more premiums. The
investments need reviewing from time to time. Advisers suggest a portfolio
check-up every 3-6 months. The asset mix might need some rebalancing. Also,
check if there are some consistent under-performers. Weeding out an investment
is sometimes expensive. Be mindful of the transactional costs.
|
CHANDRALEKHA MUKERJI
|
ETW23FEB15
No comments:
Post a Comment