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

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

How to Pick Top Performing Mutual Fund Schemes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to Pick Performing Schemes  Funds that continue to stay in the top grade of performance over longer periods are the ones to bet on, advise investment experts   The mutual fund performance charts of the past few months make for an impressive reading. Funds across all categories boast of stellar returns. Sample this: The mid and small cap category has averaged 77 percent return over the past 12 months, with the best fund delivering a staggering 120 percent. The tax-saving funds also average an impressive 51 percent, including a fund which has soared 92 percent. Many of the table-toppers are funds of proven quality and track record. However, there are also schemes that are not that well-known. Some of these have rarely made it to the performance charts in the past, yet, of late, they bo...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...
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