But, this year was meant to be different. I had made a strong commitment to self to inculcate financial discipline. So, I decided to divide my goal of financial discipline into sub-goals that I would adhere to daily, weekly and monthly to enjoy financial freedom.
January - Create Budget
First of all, I decided to budget all the goods or services that I normally wish to avail during the year.
The list included daily chores products, frequent fortnightly expenses like watching movie, usual monthly expenses like EMI, occasional expenses like gifting, rare and not desired expenses like medical emergency and most desirable - travel or holidays expenses.
I used 'Budget simple' Android application to create the budget for 2015.
February - Track expenses
After making budget in Jan. I decided to analyze my spending habits. I reviewed each goods or services paid for during last 6 months. I considered cash purchase, debit or credit card purchase and online / NEFT purchases. Then, I segregated each expenditure into needs and wants.
After analyzing each of the aspect of expenses, I decided to trim down not important expenses.
- I bought new dress for the birthday or fancy outfit for the party, but not necessarily each clothing be a premium designer outfit.
- I restricted eating at clubs or restaurants to once a week for the benefit of stomach and pocket.
- I gifted artistic handmade card and delicious home-made chocolate to all my friends on their special occasion
- I canceled club and gym membership, I was not visiting. Also, I canceled newspaper and magazine subscription that I did not read.
- Walnut - Walnut manages daily expense along with bank account and credit card details. It read SMS message from the bank and records it as expenses.
- Mint - Along with daily expenses and bank details, it also maintains investment details. It sets reminder for bill payments.
After setting out the broad outline on purchases. I decided to focus on Investment Avenue that would enable me to save tax for the current financial year.
Investment Avenue like EPF, PPF, NSC, Tax saving mutual funds and similar products saves current tax payment and create the corpus for retirement. To benefit from these tax saving scheme, I transferred funds to selected investment avenue account.
To ensure that funds are transferred regularly, I availed standing instruction facility of banks. By transferring amount to these accounts regularly, I was able to adhere to Warren Buffet principle - "Spend, what is left after savings".
April - Get debts under control
My habit of splurging and spending lavishly had created huge debt on my numerous credit card. After seeing mounting debt, I decided to make the regular minimum payment each month. But, these were not reducing my principle debt amount.
So, I studied balance outstanding on each credit card and interest rate applicable on them. Then I arranged all outstanding debt in descending order of interest rate. I decided to pay debt on the card with highest interest rate.
In this manner, I designed payment timeline for outstanding liability of all cards together, with the goal of repaying all within next 12 months. After paying all debt, I decided to use these cash flows more productively.
May - Minimize investment cost
Next on agenda was to minimize all investment costs.
I had multiple saving accounts and multiple debit and credit cards. Thanks to my frequent job changing, each employer required that I open the new account with designated bank.
With multiple accounts, I was paying minimum account balance charges and annual fees on debit and credit card. I studied features and facilities provided by different bank account and decided to close all bank accounts that were not required. Additionally, I did following activities
- Sweep In - out of saving account facility: Instead of letting funds idle in saving the account, I availed sweep facility. Any amount above designed amount is transferred to form fixed deposit to earn higher interest rate. When required, funds are re-transferred to the savings account.
- Mutual fund: I analyzed options given by mutual fund companies for investing in their scheme. Either I could get in touch with an agent who would process all documents or I could directly open an account with fund house through its online facility. I decided later option, as I could save commission payable to an agent and also enjoy higher net asset value (NAV).
- I invested in mutual fund scheme only after analyzing its fees structure, load element, and trading cost.
- Like mutual funds, opening insurance policy and paying premium online (without the involvement of agent), saves commission that would otherwise be paid to an agent.
- Demat and Trading account: Investor investing directly into equity have to maintain demat and trading account. For each transaction, the brokerage is being paid. Discounted brokerage houses (Zerodha, RSKV and similar brokerage companies) offers the lowest brokerage per transaction basis. I open an account with a discount brokerage house.
- Cash back offer: Credit card companies offer cash back on payment of utility bills through designated card. I linked all utility bill payment to credit card.
- Other Offers: With technological evolution, many e-wallet companies has started offering various scheme for encouraging people to use e-wallet. Prior to shopping online, I scrutinized each offer and took best advantage of it.
At the end of this month, annual bonus was credited to my account. Unlike earlier years, I decided to invest 50% of the bonus amount, after selecting best investment option.
I was on top of the world to have received desired salary increment. However, I decided to maintain my expenses at current level and not to make any changes in my lifestyle. I deferred desire for luxury product consumption and invested incremental salary amount for brighter future.
For a moment, the decision to not spend incremental salary and bonus left me shattered. But this gave me financial freedom and made me feel more empowered.
July - Revisit your goal
After completing 6 months of financial planning and adhering to discipline approach, I decided to review goal and actions taken. I also checked for changes in tax law and any action to be taken for it.
I reviewed my investment portfolio consisting of equity, mutual funds or gold. I also gave thought of how to add real estate to this portfolio.
Before the end of the month, I had to file my annual income tax return. Firstly, I collected and then organized.
- TDS certificates from my employer, from banks and other entities that deducted tax at source.
- I arranged all demat slips to record all equity transaction and determine gains or loss on equity investment.
- I made a list of other miscellaneous documents that I might require.
With the start of the festive month and soon to be approaching Independence Day, many retailers and e-retailers were offering heavy discounts on most of its products. In many cases, there was competition among seller, to offer the best discount. I studied and analyzed each discount offer.
I bought only those products that I need and not the products which seller no longer wishes to hold in his inventory.
September - Making most of Cards
I was holding multiple credit and debit cards. Most of the cards were obtained to avail peculiar benefit on that card. However, there were numerous instances, when I could not remember which card has the best offer. I end up paying from any card.
During the same period, I had opted for number of loyalty card to the get benefit of loyalty points. But in many cases, shopping was done without recording purchase against loyalty card.
To maintain record of all loyalty card, I began using App -
- Stocard - It maintains record of all loyalty card. However, it does not collect any purchase related data.
- Key Ring: Cards Coupon & Sales: Keeps, scans, and stores all cards - grocery cards, gym cards, library cards, gift cards
October - Multiple Income
With Diwali around the corner, I decided to learn an art that I could use to decorate my home. I picked up few Do-it-yourself kits from Hobby ideas and started self-training
After few initial attempt, the final product turned out to be amazing. My friends, relative and guest insisted that I make one similar product for them. I pleasurably created few models and earn $$ as a token of appreciation from them. I was so glad with this experience, that I uploaded my craft on eBay and Etsy. My product gathered hundreds of likes and attracted attention from multiple buyers.
November - Invest in self
To sharpen my skills, I signed up with few MOOC courses on investment analysis and some business related courses. By attending these courses online, I was able to expand my knowledge base, learn skills from world's best tutor. Few courses enable me to develop skills designed for get better job.
December - Enjoy wealth
As the last month of the year approached, I decided to treat self and explore new place.
By detailing financial plan and sticking to it, I could stop all financial leakages that were stopping me from enjoying my wealth and financial freedom.
After all, what's the point in hoarding wealth, if we cannot enjoy it.
You may try some of these tricks to enjoy your way to financial freedom. I wish my financial learning's of 2015 would enable you to plan your finances in 2016. I wish you all financial success in 2016.