How to manage your Bank Savings account efficiently

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 1^st 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.

1. 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.
2. 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.

3. 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.

4. 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,

                                                                                                    

Beware of the Credit Card Debt Trap

You must have heard of the quote “Rather go to bed supper less than rise is debt”, by Sir Benjamin Franklin. This famous quote just gives an indication to the extent of troubles that one might invite if debt is not managed properly.

One of the most common types of debt among our urban class is Credit card debt. Let’s try to understand how one falls into the debt trap.

Sumeet, 26 had gone along with his friends for pre- Diwali shopping at one of the local malls and during the course of a few hours ended up blowing up a couple of thousands which was way beyond what he had planned for. All his purchases were done by credit cards as he did not hold that much cash in his account. When the credit card bill came in next month, he was comforted by the fact that he could make a minimum payment of close to 5% of the outstanding amount and pay the rest in the following month. Little did he realize that he would have to pay an interest on the outstanding at the rate of 3.5% per month (42% annulised). In the interim, Sumeet added a few more debts by purchasing some electronic items and dining at some of the posh restaurants with friends. Sumeet never saved enough to pay back the entire credit card debt and in a few months his debt and interest outgo reached such a level that he started skipping even the minimum amount due. The final nail in the coffin was when he started getting hounded by calls from recovery agents. Had it not been for his father who settled the entire outstanding with the credit card company, Sumeet‘s life would have become miserable.

Even young married couples too fall into the credit card debt trap and by the time they realize, it’s too late.

How does one avoid this pitfall? There are 5 steps you can take to avoid landing yourself in such a situation.

o   Maintain a monthly budget.

o   Maintain a contingency fund

o   Always use your debit cards

o   Maintain a credit card only for emergency.

o   Pay your credit card bills on time

o   Don’t keep more than one credit card

Maintain a monthly budget

This is the first thing which should be done and followed diligently. Prepare a simple cashflow statement of inflows and outflows so you are aware of the possible expenses and surplus (if any) that is generated every month. If there are no surpluses then you can take a hard look at the possible expenses and try to rationalize them and generate surpluses for savings. This exercise will also help you to plan any high value purchases in advance.

Maintain a Contingency Fund

A contingency fund equal to 3 -6 months of your monthly expenses should be maintained in your savings account in order to fund for contingencies such as a hospitalization or loss of job. This fund will enable you to meet the unforeseen expenses and prevent you from borrowing. For example if your monthly expense is Rs. 25000, then you need to maintain at least 75000 in your savings account for contingency purpose.

Always use your debit cards

Usage of your debit cards will keep your purchases under check and you will spend within your means. You will be more disciplined towards your purchases and avoid falling into the credit trap.

Maintain a credit card only for emergency

Credit card has its own advantage too. Given a situation when your family member faces a medical emergency and has to be hospitalized at odd hours, you might not have access to cashless mediclaim or an ATM at that time. The credit card comes in handy in order to pay the initial deposit. But make it a point to pay back the amount within the first payment cycle.

Don’t keep more than one credit card

Nowadays we are bombarded with hundreds of calls from banks to take up a credit card with promises of no membership charges for lifetime. Do your due diligence on the various possible charges including the membership fees, late payment charges and interest rates charged, before signing up for one. Having more than one card will always provide the temptation of making purchases beyond your paying capacity.

Pay your credit card bills on time.

Please remember the credit card debt is the most expensive debt among all categories of debt. The annualized percentage rate can be as high as 42 %.Most of us fall into the credit card debt trap when we fail to pay the credit card outstanding bills and continue paying the “Minimum Amount due”. This results in the company slapping us with late charges penalty and interest on out standings.

Please remember that it’s easy to get into debt but difficult to come out of it.