Have you often said “ I have no idea where my money is going? And don’t know where the money you are spending. If yes, this article is for you to make you understand how to manage your expenses and to keep a full stop from saying it again.
Why Do We Say That:
As most of us will be salaried all of us get a smile when we get the message saying Dear Customer, Your a/c no xxxxxxxx9880 is credited with Rs.5xxxxx. As money is credited to the living costs, EMIs will kick start immediately taking out a smile from our face.
The reason why we face this situation every month is that we don’t have an effective cash flow system in place. We don’t have a track of expenses where we are spending and how much. Everybody in society has more or less money to save, as every one of us will be earning, from the poor woman who sells vegetables on the roadside to the business tycoon driving in his Audi. We just don’t know how to look at it
The key to finding the money to save and invest is to have a good cash flow system. You might say that this is done by companies or business entrepreneurs and not a salaried professional right?
Managing Cash Flows:
Cash flow is a system that makes us monitor our income and expenditures and helps to keep expenditures synchronized with income. Note down all incomes and expenses below
If you start noting down all expenses you will come to know how much you are spending on food, fashion and apparel, rent, and other utilities. Two things will happen when you begin doing this, firstly you get bored and keep aside this exercise after a few days. Two, you get conservative in spending. I have done it for 2 months, and then I came to know the spending pattern of my life. And now I have better control over my expenses
To make this cash flow system work seamlessly I use three bank accounts. One is for a salary account which will be used for salary credit. The second one is an expense account where all the expenses including Rent, EMIs, and utility bills are being paid through this account. The third one is an Investment account which I will use for investments in stock markets, and mutual funds and park surplus money in liquid funds
As soon as the salary is credited, transfer the monthly budgeted amount to the spending account. And move the rest of the money to an investment account. Two things happened when I began doing this. One, I began to question my spending. Once you realize how much is going into your Spend-it Account, you can’t hide from yourself anymore. Two, as the Invest-it Account begins to build up, you see how much your saving capacity is
Points to Remember:
- Spending on living costs should not be more than 45%-50% of take home.
- EMI payouts should not be more than 25%-30%
- Finally, the last and important one Savings should be 15%-20%.
As we are in the starting of the month start tracking the expenses from this month as soon as the salary gets credited. Comment on your experience doing this
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