Skip to main content

Cash Flows: Maintain your own balance sheet

Plan your big expenses. Otherwise, finances can go haywire

Cash flow management sounds a very boring financial term, unrelated to a person's income and expenses. Yet, it does form a part of the foundation on which a sound financial plan is built.

Cash flow management is essentially taking stock of your income and expenses and arriving at your net financial position. It includes smoothening of the expenses over the entire year, to avoid the pain of big payouts in a short period of time.

The two main components are income and expenditure. The income head will take into account all your sources of income. That could be salary or business income, rental income, interest, dividends, annuities, royalties, and so on. Certain incomes are received once or twice a year like bonus, variable pay or the unclaimed (taxable) portion of a leave travel concession, and medical allowances. Accounting for all incomes is fairly simple; the difficult part is consolidating data pertaining to expenses, especially if you do not maintain a written record

EXPENSE ACCOUNTING

To make things simpler, you can divide the expenses into fixed and variable components. Fixed components are those that will not change month-on-month; variable expenses will change speriodically.

Fixed expenses could include your rent, monthly instalments, insurance premiums, savings, salaries paid out and domestic help. Variable expenses could include your routine living expenses like grocery, milk, vegetables, fuel, electricity, telephone and mobile bills.

Most of these will be monthly. But there could be some with a quarterly or annual frequency like school fee payment or vehicle maintenance.

There could be other expenses which are irregular in nature. These would include payments for gifts, outings, and other miscellaneous ones like home renovation.

Once the data on these two heads is complete, you can arrive at a fairly accurate picture of how much you are capable of saving every month. During this process, you need to keep a sufficient buffer to absorb any expenses you might have missed out in the whole exercise. This will also cushion the impact of any impulsive spending.

THE SMART WAY TO PLAN

Certain expenses in the fixed category could be large, like a school fee payment or insurance premium payout. The payment dates for these are already known to you. So, you can plan these in a systematic manner. Say, you have

a ` 1lakh payout every February. You can start a recurring deposit of`8,200 per month. If you get 7.25 per cent for this RD, you will get about `1.01 lakh on maturity. Keep the RD in such a manner that the maturity coincides with your payout dates. Then you will not feel the pinch of a large payment in any particular month.

Similarly, if your bonus payout is in December, and you have a fair idea of the amount you might receive, you can invest it in short-term fixed maturity plans, coinciding with your insurance premium payout in, say, April. This kind of income can also form a part of the contingency fund that will aid you in unforeseen circumstances like a medical emergency or loss of job and so on.


Popular posts from this blog

Rs 14,000 Crore worth of tax free bonds coming soon from NHAI , PFC

  NHAI, PFC file prospectuses, coupon rate not yet decided MORE debt investment options have opened up for investors with AAA rated tax-free bonds worth over Rs 14,000 crore lined up. The National Highway Authority of India ( NHAI ) and Power Finance Corporation ( PFC ) are offering Rs 10,000 crore and Rs 4,033.13 crore worth of tax-free bonds, respectively, as per prospectuses filed with the Securities and Exchange Board of India (Sebi). Of a Rs 5,000 crore issue by PFC, Rs 966.87 crore has already been raised through private placement on September 28 and November 1. Tax-free bonds give investors tax-free return on any amount invested. In another kind of bonds, the long-term infrastructure bonds, investments up to Rs 20,000 are tax exempt, that is this cap amount can be deducted from the taxable income. Accordingly, the NHAI prospectus has clarified that only the amount of interest from -and not the actual investment on -its new bonds will be tax-free. "NHAI's publ...

Change in Fund Manager for some of HSBC Mutual Fund Schemes

Buy Gold Mutual Funds Invest Mutual Funds Online Download Mutual Fund Application Forms Call 0 94 8300 8300 (India) However, this facility is only available to Unit holders who have been assigned a folio number by the AMC.   HSBC Mutual Fund has announced that the below mentioned schemes shall be managed by the new fund managers as stated in the table. The effective date will be July 02, 2012.   Amaresh Mishra 's will be Vice President and Assistant Fund Manager. Having done a Post graduate diploma in Business Management and Bachelor of Chemical Engineering, he has over seven years of experience in Equities and Sales.   Mr. Piyush Harlalka's designation shall be Vice President- Fixed Income. Qualified as a C.A., C.S. and holding M.B.A.( Finance degree), he has over six years of experience in Fund management and ...

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...

Personal Finance: You can insure your wedding

But luck may not always be on your side. With the frequency of such attacks, as also other risks and unforeseen accidents growing, a wedding insurance is something you may want to look at if a marriage is being planned in the family. Event insurance plans like this is still in its nascent stages due to low awareness. And given the sacred nature of the ritual, nobody wants to discuss or think negative. But as wedding spends and risks grow, it makes sense to cover the potential monetary loss. The policy in those countries even covers the loss of the wedding ring, the wedding gown not reaching on time and even the expenses/loss due to late or non-appearance of the photographer which may mean staging the event once again for the photograph. In India, most insurance companies — including ICICI Lombard General Insurance, Oriental Insurance, Bajaj Allianz and National Insurance — offer wedding insurance. The policy is tailor made to individual requirements and needs. The sum insur...

DSP BlackRock MidCap Fund

Best SIP Funds Online   HOW HAS DSP BlackRock Small & Mid Cap Fund PERFORMED? With a 10-year return of 14.61%, the fund has outperformed both the category average (12.34%) and the benchmark (10%) by a good margin. Should you invest in DSP BlackRock Small & Mid Cap Fund? This fund invests predominantly in mid-cap stocks but takes a sizeable exposure in small-caps as well. The focus is on nascent companies with high growth potential. The fund manager places emphasis on quality and avoids inferior businesses even if these look tempting from a valuation perspective. Over the past year, the fund portfolio has grown, having added to some of the underperforming sectors like chemicals and healthcare. Its portfolio churn has come down significantly. The heavily diversified portfolio is run completely agnostic of its benchmark index— most bets are from outside the index—which can at times lead to bouts of underperformance as seen in the recent years....
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now