26-year-old Maya planned to buy a car in January. She chose one that suited her, with jazzy colours and the latest features. There was no problem—she got a loan approval almost immediately. Even the Equated Monthly Installments (EMIs) seemed affordable.
The thrill of owning a new car lasted for about four months until her friend from Spain invited Maya for her September wedding.
Now, Maya was in a fix. The trip would easily last for two weeks and cost her Rs 1.5 lakh. While her salary could ensure she would afford the trip, timing the payments would be an issue.
For example, she would need Rs 45,000 to buy the tickets in June. That’s a big sum. Plus, it clashed with an insurance premium payout worth Rs 50,000. That meant Maya’s cash flows were negative. Her salary was not enough to afford two such payments.
No. Maya had to plan her finances for the next 6 months to avoid missing any EMI payments AND also travel to Spain. Otherwise, she would have had to borrow some more money, unnecessarily.
In all probability, yes. Just replace the car and Spain with any other goal in life, and the story may hit home.
After all, the good things in life usually cost money—a whole lot of money. But stuck in the daily grind, it’s easy to forget to plan and save for the future.
Here’s an easy solution. And all it requires is a few hours, a few smart tricks and some discipline:
Solution: An annual financial calendar
In schools and colleges, teachers followed a strict time-table:
9a.m. to 10a.m.: English class
10.30a.m. to 12p.m.: Physics lecture
1p.m. to 3p.m.: Practicals
3.30p.m. to 4.30p.m.: Maths class
5p.m. to 6p.m.: Chemistry lecture
That would be Monday. But a similar regime followed throughout the week with minor changes here and there.
You can follow something similar for your money. Just look at the whole year and month differently as one big series of lectures.
For example, Week 1 of every month would entail Salary payments, utility bills, and loan EMIs. Week 2, meanwhile, could be for your compulsory investments like insurance, tax-saving investments, or even the money to be set aside for a future goal like Maya’s Spain trip.
Week 3 and 4 could then be reserved for your other expenses.
This could bring some method to the madness that adult finances often is.
So how to make your annual financial calendar?Financial Calendar PPT
Step 1: From your monthly income, subtract your fixed expenses and must-have savings. This includes your EMIs, tax-saving investments, insurance payments, etc.
For your tax-saving investments, calculate your annual income. You can invest up to Rs 2.25 lakh in various instruments including life and health insurance, mutual funds and fixed deposits. If your annual income crosses Rs 2.5 lakh, invest as much as possible. This will bring down your income and save tax. To make this investment easy, spread out it over a period of 10-12 months.
Calculate your insurance premiums using online calculators. If the premiums exceed Rs. 5,000, then save for it over a two/three-month period.
Schedule these for the first week after pay-day. This ensures you don’t spend all your money without saving for the future. It’s like jumping from a cliff ONLY after getting the bungee ropes tied to your body.
Try to automate as many of these as possible. This will ensure you avoid the temptation of spending.
Step 2: Now figure out your major expenses for the year. This includes expenses like a new car’s down payment, a Spain trip, etc. Now, spread this out over a period of 3-6 months. Whatever is the monthly amount, set it aside in a different bank account in the second week. The other bank account helps ensure you don’t spend the money inadvertently.
Step 3: Set aside Rs 2,000 every month for emergencies. Over time, build enough to replace three months’ pay. Ensure you protect this money from your regular expenses.
Step 4: You may have to spread and tweak your calendar some more to fit your needs. The idea is to smooth out all the payments. Then, make a monthly calendar like below:
That’s it. You are all sorted. It’s then time to follow the plan and enjoy the peace that follows.
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