Gone are the days when we used to stand in serpentine queues to withdraw money from our local savings bank accounts. Even though the procedure was cumbersome, it ensured that we estimated or budgeted the monthly cash requirement before we filled in the withdrawal slip so we could avoid the trouble of again standing in the queue. Today with the help of automated teller machines (ATM’s) we can conveniently withdraw our monies from several locations. The ATM technology has definitely made our lives a lot easier but if not used in the right manner it can also leave you high and dry.
Take the case of Mr. Aditya, 36 who works for an MNC firm in the senior managerial category and earns a net income of Rs. 75000 per month. His family comprises of his homemaker wife Sarita, 34 and Son-Arnav-5 and they stay in their self owned flat in one of the suburbs of Mumbai. Their monthly expenses including a home loan emi ( Rs. 31300 for a 30lakh loan) and other living expenses comes to Rs. 60000 per month. Another Rs. 5000 goes towards an SIP in an equity diversified fund bringing the total outflow per month to Rs. 65000 thereby leaving a surplus of Rs. 10000 per month.
From the day the salary is credited which is usually on the 1st of the month, the ATM cum debit card is put to maximum use for initial cash withdrawals, Grocery purchases and a few additional purchases at malls with family in the weekends. Aditya has no track as to what his exact monthly expenses are but takes care to maintain sufficient balance for his home loan emi debit. No fixed pattern is applied for cash withdrawals. The withdrawals range in various amounts of Rs. 15000 to 20000 initially in the beginning of the month and then small withdrawals ranging from Rs. 2000 to Rs. 5000 in the latter part of the month and at times he is not even left with minimum balance.
Following this pattern of unplanned withdrawals and expenditure, will never let Aditya realize if he is overspending or making impulsive purchases on things which he doesn’t need. Secondly not maintaining funds for contingency can prove to be fatal if faced with an emergency situation such as a sudden medical expense.
Here are a few guidelines which can be followed to ensure that your savings account is maintained in the most prudent manner.
- Prepare a family budget: Maintain a simple budget book in which you can jot down the monthly income and expenditure. This exercise needs to be done in consultation with your spouse as there are a host of family related expenses such as grocery, utility bills, etc which the home maker or working women would be managing directly. Joint consultation helps in including all the possible expenses that the family has to cater to every month and enables near accurate results. Don’t forget to include periodic or annual expenses such as Insurance premiums, Vacation, etc which can be one time or spread over different months. For those who don’t know what their exact monthly expenditure is, can begin with writing down their daily expenses for a month or two and monitor the same which should be good enough to give you a fair idea of what your expenses are going to be. Doing this exercise over several months will enable you to reach near accurate levels.
- Control your ATM withdrawals: Once you have prepared your budget the next step is to withdraw the amount required for the whole month. Take care to see that you don’t withdraw cash for expenses such as insurance premiums, society maintenance etc. You can keep provision for those payments by maintaining the required amount in the bank and issuing cheques towards those expenses. For eg. If your monthly expenditure on groceries, consumables, utilities, etc is Rs. 20000, while insurance premium and society maintenance is Rs. 10000 and Rs, 3000 respectively then withdraw only Rs. 20000 and maintain upwards of Rs. 13000 to be paid vide cheque. The budget based expenses will avoid excess withdrawals way beyond your requirements and prevent several trips to your ATM’s.
- Maintain a separate record of your bank transactions. How many times do you visit the ATM to check the balance in your savings account or to take a mini statement? Others take recourse through their online banking platform. These routine visits can be eliminated if you maintain a small record of your income and various transactions in a separate book or in an excel sheet of your PC.
- Maintain a contingency fund: There could be events such as a medical emergency which may require urgent or immediate funding. Try and maintain a contingency fund of minimum of 3 times of your monthly expenditure in your savings account. The contingency fund may vary across different families and depend on various factors such as job stability, dependent parents, etc and can be decided in consultation with your financial planner.
Make a beginning today and experience the difference it can do to your lives.
By Steven Fernandes,