FACING FINANCIAL PROBLEMS FOLLOW THE 8 FOLD

STEPS AND BE HAPPY

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Demonetisation is the sweet devil making the headlines in the current

economic scenario in India. You can go ahead, manage the finances in a
systematic manner for various tasks like managing your daily expenditures,
effective portfolio management and host of other financial tasks. The
Demonetisation drive has been felt in various segments of our economy.

Lets drive down memory lane. In the year 2016, financial matter was taking
the centre stage. Certain important questions, we can ask ourselves like

Were your finances in proper order?

Is there any great increase in your savings?
Have you taken any loans in 2016?
Did you have any new expense in 2016?
1. Have A Financial Plan In Place:

A proper financial plan must be introduced early in your life. It does not
matter, you are young starting your carrier, or old, that is done with the
carrier. It helps in controlling your financial situations in a systematic manner.

You cannot follow a particular pattern or a formula to have a financial plan. It

differs from one person to another and even situations will dictate terms. You
can go ahead and hire a good financial planner to execute a plan.

You must be focused and must have short, medium and the long term goals.
After setting up the goals write down the matter in a piece of paper and
calculate the time taken to achieve them.

For example: You are sending your kid to a good educational institution.
Making your kid join a good establishment, after 16 years would cost
approximately some lakhs at todays cost. Furthermore, you need to enter all
the goals, targets in a systematic manner.

Remember, the goal, you need to achieve is attached to todays cost. Hence
you need to calculate the cost and prepare an investment plan in a systematic
manner. Please do not save, unless you know the exact amount to avoid any
under-investing.

The choice of asset class is essential in order to achieve goals based on their
term. You need to choose equity-related products like the mutual funds that
are large and average mutual funds, helping towards achieving the goals that
are seven years away. To satisfy the goals with small tenures, balanced funds
and the income funds can be used.
2. Acquire a Credit Report: From January 1, 2017, the Reserve Bank of India
(RBI) has ordered all the credit establishments to offer one base consumer
credit information report (CIR), absolutely free of cost to people having good
credit history. If you repay the loan using any credit card, or have taken loan in
the past, will play a major role in taking better view of the debts. During any
kind of discrepancies, best solution will be to clear all your debt, before you
move forward.

3. Set Up An Emergency Fund: Due to the demonetization drive, the rate of

interest on the bank deposits and the savings bank account is coming down.

You must look at various possibility, at the stage where the competitive
interest rates can be utilized, without doing any negotiation on liquidity
factors, because bank account are used for emergency purposes. In order to
have effective management, you can keep one half of the funds in savings
account or sweep-in fixed deposits, and the remaining half can be deposited in
short term or liquid mutual funds.

Most of the withdrawals are said to be restricted as these kind of redemption

has got withdrawal limits. Returns in liquid funds will differ, whereas savings
account will give guaranteed returns. Savings accounts have offered approx.
7.5% over the past one year, while savings account is approx. 4% in many
banks. If the rate of interest is low, then the net asset value (NAV) of the liquid
funds will grow up. Helps in making your money grow, with some portion still
in savings accounts.

There is no rule on how much emergency cash you require. To be honest,

household expense ranging from 3 to 6 months can become your emergency
fund. It helps in giving you the assurance to get rid of any financial
emergencies.

4. Get Rid Of Debt: If you have got any dues regarding your credit card, you
need to get rid of it as early in 2017. Not clearing the dues, on credit card will
increase interest rate to approx. 36% per year and you will lose out on interest
free period of approx. 4551 days on new purchases. One must avoid
schemes like balance transfer and converting the EMI (Equated Monthly
Instalments), because they come with price tag. One can use the credit cards,
but please make sure you make payment on the due date.

Home loan, a productive debt, requires a sure shot plan to be closed. Imagine a
situation, where in INR 35 lakh home loan at 8.6% for 15 years will have an
interest of approx. INR 27 lakhs. Hence, along with the EMI, you need to make
a plan to keep making partial payments towards the home loans to save
interest. This move reduces outstanding principal amount and calculation of
interest is on the reduced principal.

Case Study:

Imagine that, you take a home loan for INR 40 lakhs at 9.65% for 15 years, with
the EMI of INR 42,131 will have the first year interest amounting to INR 3.8
lakhs, whereas the total pay-out over 15 years will be approx. INR 35.83 lakhs,
if there is no change in the rate of interest.
Take another situation, if the borrower, along with the EMI made payment of
INR 10,000 every months for first three years, the interest accrued will get
reduced by INR 8 lakhs. This is the place; you save the money and the tenure
will reduce to 12.75 years. To be honest, the higher the repayment amount,
and longer periods, amount of savings will also be very high.

Furthermore, if your home loan is connected to banks base rates, you can
transfer to the marginal cost of the funds based lending rate (MCLR).
Furthermore, one can also ask your banker to convert to the MCLR mode,
coming at a small price. MCLR is more open to RBI rate cuts, than the base
rates linking your plans and loans to MCLR in a systematic manner.

5. Review And Expand Portfolio: In the beginning of the year one can expand
and review your investment portfolio, the mutual fund schemes. There are
equity based investments, done for long term; irregular/surprise reviewing of
the mutual funds performance can play a major role in optimum portfolio
returns.

One can go ahead and look at mutual funds performance; you can compare
the mutual funds return with the targeted returns. Furthermore, the policy is
not able to beat its target on a regular basis should not be in ones selection. If
there are low performers, replace them with go getters, after carefully
analysing the new ones. It is vital to identify over and under performers, where
in you must have a longer time horizon, evaluating over 3, 5, 7, 10 years.
Furthermore, you must also take into account, the category average returns.
Furthermore, the policy has exceeded the expectations by good margins; there
will be good performers in the peer group. If you look at the group, the
average returns always tell you how excellent/bad your mutual funds scheme
performance against the entire group.

6. Launch Goal Based SIP: The Systematic Investment Plan (SIP) is the general
word to undertake investing. You must undertake a target based investment
and latch on to 2 or 3 schemes in a systematic manner through SIP. You must
go ahead and link it to a specific goal, like the childs education. Furthermore,
one can also make sure that you have diversified across market limits and
segments through the SIP. You must avoid the lure to redeem, in order to meet
the short-term household needs or due to the market changes. Furthermore,
you can also start moving the funds from equity Mutual Funds to the less
volatile debt funds to preserve the amount.

7. Plan and Save For Investment: Concept of retirement cannot be ignored.

Youngsters of today are saving the money big time to take care of retirement.
Furthermore, if you are asking a middle aged person, nearing retirement,
without a shadow of doubt he will tell that early retirement would have helped
him and his family. Saving for retirement is like one day cricket, where in if you
score as much run in the first 15 overs, the asking rate will come under control.
Furthermore, if you start saving the amount early, money requirement for
retirement purpose will be very less.

Many youngsters, to be honest are not serious towards retirement benefits. If

you assume that approx. 5% inflation is present, INR 50,000 monthly budget
will rise to INR 1.7 lakhs a month, approximately 3.5 times. Hence you must try
to look at the household expenses and not look at current costs.
The inflation plays a vital role in bringing down the purchase power of the
currency. For example: One crore of money will fetch you goods and services
for only INR 48 lakhs.

8. Going Cashless: There are various ways, if you are moving on to cashless
transactions in 2017. Some of the steps are:

Some people do not want to share any details. At this juncture, the
Unified Payment Interface (UPI) is the best alternative.
You can also create your Virtual Payment Address (VPA), start sending
without giving bank account number, IFSC code, card number Most of
the situations, virtual card are a runaway hit, for people hesitating to use
debit and credit cards in India. Best part is that you need not input the
CVV number during online transactions. If you want to create virtual
card, then you need to have internet banking facility with transaction
rights. You must also have debit/credit card handy with you for the
purposes.

Conclusion:

To be honest, there is requirement of the household budgeting mechanism

in place, to have superior cash management. These online tools can be used
in tracking expenses and income. Furthermore also helps in cutting on
unnecessary expenditures. Money is a sensitive topic, and you need to drive
yourselves to set up your household budget before the actual budget is
announced on February 1, 2017 by the Modi government.
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