| WealthDesk |  |
Home / WealthDesk /
|
|
|
 |
| Financial Planning |
| The Umbrella for a Rainy Day: How to Control Personal Costs in Recession |
| Author : | thedesk |
| Institute : | |
| Posting Date : | 09/04/09 |
|
|
|
| Total 13 vote(s). |  | |
|
|
|
|
|
The advent of recession has meant that the worst scenario has evoked panic while the best case scenario has evoked pessimism! One of the key practices that can help in such uncertain times is the cultivated habit of savings and retaining liquidity. Find out where and how you can save money during these times
|
|
|
'The world has changed and you can either take notice of it and adjust your spending or ignore it, stick your head in the ground and stock up problems for the future.'
- David Elms, chief executive of financial advice trade body IFA Promotion
This recession has created uncertainty, the extent of which, most of us have not encountered thus far in our lifetime. Comparisons have been made with the Great Depression of 1929, and there is much debate about how long it might last. Stories of firms going bust and bankrupt and employees suddenly finding themselves without a job have only served to compound worries and fears about the future. The answer: No one knows how the future looks like, however its better not to get into a trap where extreme optimism or extreme pessimism reigns in our thinking.
What are the lessons in it for us? The answers begin with the simple word: Savings. Expert financial planner Kim Kiyosaki, author of Rich Woman: A Book on Investing for Women, says the first step is to make a firm commitment to yourself to learn about your financial choices, and to save your money.
Once you've decided to take control of your money and your future, get started with a regular saving process. Make it a point that for every single rupee that comes into the house a certain percent needs to go into the family savings pool.
The Common Issue
One of the biggest areas of concern has been the continued, unabated personal spending, making recession and job losses look like they never happened. No one starts the month planning to fritter away a small fortune, but that’s what can happen when minor expenses spiral out of control. It’s not just shopping at expensive stores that can drill a hole in your trousers. A series of seemingly innocent purchases like buying extra pairs of jeans, gadgets, junk food etc can all add up. “You can undermine some of your most important goals with purchases you’ll never remember,” says Suzanna de Baca, president of Private Capital Solutions Group, a Des Moines, IA, investment advisory firm.
People still spend on vacations, clothes, food, shopping and other things in a haphazard manner because they haven’t been able to change their habits. The result has meant frustration or lack of liquidity or loss of spirit, or all three.
The Solutions
Plan Your Spending Well
Spend less - make it a habit! Over spenders are individuals who spend too much for things when they can get them cheaper. Take five minutes and look at you latest bank statement. If there are dozen entries of ATM withdrawals in the past one week and you can’t remember why you went the ATM so many times, it is time for you to track your spending for the next one week. Then you can prepare a budget using excel.
Determine what you can reasonably afford to spend each month and then track how well you are doing by entering actual expenses into your excel budget record. Whichever you choose, find a money-tracking method that lets you see your purchasing patterns with fresh eyes. If you find that you are spending less than you had anticipated, you may want to put more money in your savings account to help out with unexpected expenses.
If you find that you are spending more than anticipated, try identifying the items you really don't need (new clothes, CDs, expensive dinners, vacations) and avoid spending money on them until you are back within your budget.
Save to Invest
If you are able to save your money well, you should look to invest your money in areas that give you reasonable returns in the long term. It is also advisable to seek the advice of a financial planner since financial planning and investment is a specialized job that requires the expertise of a finance professional trained to understand it better.
Retain liquidity
One of the key governing philosophies of regulating your finances today is to retain liquidity. Considering the fact that this recession may not be over in 2009 (that’s the least we can expect!), being laid off a job or having to live off savings may become major points of worry. It’s better to be pessimistic in the area of savings and retain liquidity for use in the near future. Its advisable to put off large loans for later - make sure that you have at least 6 months liquidity for paying EMI of loans that have already been taken.
Travel in the City and Outside it
Fuel and car costs can eat away into your expenditure and create a monthly outgo that can be avoided. How? Avoid taking out the car if its not necessary, look for car pooling with people of the neighborhood or office, and if possible, use public transport. In Mumbai, look at the grain of traffic on that day, and take a call, because you may end up burning more petrol, especially with the clogged up traffic snarls caused by the work on metro. In New Delhi, one can take the metro. Also, there are options like Meru Cabs over the more expensive Cool Cabs and other companies that you can look up on the net. Its also the right time to use bicycles on weekends for going to places close to the house. Cycling also gives you a good exercise of limbs.
Travel to places outside the city can be done in trains. Book those trains that have overnight travel. That way, you will save the day’s travel and also be more comfortable. There are options available through www.irctc.co.in - the Indian Railway online booking site.
Cut Eating out costs.
Eating out was never a need nor an addiction; It has been an indulgence that can be curbed during these times. This particular habit saves a lot of money and also, eating healthy at home makes better sense. You may also want to look at spending habits on habits like tea and coffee, particularly if they are proving expensive. Take the example of buying a coffee on the way to work in London. A medium latte from a High Street coffee shop typically costs £1.89. Bought five days a week over a standard 47-week working year and this adds up to £444.15!
Give up Smoking and Cut Back Drinking
There are lines smokers may not like. In India, smokers hooked on 1-2 packets a day habit can save upto Rs 3000 - Rs 6000 a month; which means a princely sum between Rs 36000 to Rs 72000 can be saved from this year onwards if you stop smoking during these recession times. In the UK, smokers could pocket even bigger savings by stubbing out their habit. At £5.50 a packet, a 20-a-day smoker pays more than £2,000 a year for cigarettes. Giving up smoking, thus, can save thousands of pounds a year. Above all, it brings in a higher state of health consciousness. Similarly, limiting or avoiding alcoholic drinks can cut your expenses in restaurants. Drink in moderation, or trying to up the spirit regularly can be dispiriting in the long run!
Effectivise Your Phone Bills
Try and take advantage of family phone schemes which help you cut your phone bills by about 50%. There are schemes most phone companies have these days. Call them up and see if you and your spouse or the family can use one service provider to cut costs. You must also retain your current phone so that official calls aren’t lost; but use the family phone scheme telephone to make calls - local, national and overseas.
Spend Smartly on Movies
A cheaper way to watch a movie is to get CDs home. That way you’ll be able to watch more movies, and that too at a time of one’s choosing. However, there are people who love to watch movies in theatres, which is absolutely fine. But remember you wouldn’t want to pay Rs 400 per movie ticket as some movie halls charge. Look for afternoon and matinee options on weekends where you spend 1/5th the cost in some multiplexes. And yes, if you are going to the multiplex, avoid spending on the snack there. A bottle of water is known to cost Rs 35 at certain multiplexes, which gives you a reasonable hint about the prices of other stuff. Besides, the food in a multiplex is never known to be healthy. So, carry a bottle of water if you can besides avoiding overspending.
Postpone Home Refurbishing
If you are bringing home a piece of furniture and accessory, make sure that you really love it and not tempted by the whim to change something in a hurry. It happens so many times that we go shopping and plan to buy one thing but we bring home another, having heard the salesman there. This is one time to really avoid such a folly.
It is better to research extensively online if needed. Information is available at the click of a button, so why not test the options before you spend. Check what and where a particular thing you wish to buy, available at the lowest cost. Check the reviews if there are any. This may sound conservative but can help you make decisions more rationally and cut out avoidable spending.
Save Health Costs
This is a good time to make a resolution and then make it work. If you’re overweight, get your weight down to reduce the risk of diabetes. It will also help with hypertension and other problems that can cost you a lot, if not addressed properly. Prevention may not be a cure but it sure can help you cut down on your health bills later. Stick to simple, digestable home food which will help you stress less and therefore you have lesser chances of falling sick because of a bad stomach or food poisoning.
Pay Your Credit Card Bills Every Month
If you pay your credit card bills on time, you won't pile up interest fees. All this is common knowledge but then common knowledge is uncommonly practiced, and that’s why you have this advanced world still trying to figure out how to make the economy work. When the card statement arrives, don't postpone it for payment at a later date. Write a cheque or arrange to debit the bill automatically from your bank account.
David Elms, chief executive of financial advice trade body IFA Promotion, says: 'The world has changed and you can either take notice of it and adjust your spending or ignore it, stick your head in the ground and stock up problems for the future.'
Tips for Kids: Little Savings Yield Big Rewards
Kids need to earn and value money to understand how things work. Make them understand why spending should be done with utmost care. If you're at a restaurant and you pay the check with a credit card, explain to your five-year-old son in very basic terms what you are doing. The same goes for writing a check, withdrawing cash from a bank, and so forth. If your daughter wants to buy a toy or a book, you may give her one but once in a while, make her save up for her toy. She’ll be thrilled to buy one like that - with her savings…and your money!
Miscellaneous Items
Look for discounts - books, clothes, household items. Look for cheaper supplier of CDs, movie theatres, books and book-fairs, phones and internet cable.
Sources:
http://pokedandprodded.health.com/2008/11/23/10-ways-to-lower-health-costs-in-the-recession/
http://moneyning.com/money-tips/recession-no-recession-save-your-money/
http://www.thisismoney.co.uk/consumer/savingideas/article.html?in_article_id=462551&in_page_id=512
http://www.siliconindia.com/answers_new/Personal_finance/Which_is_the_ideal_cost_cutting_to_save_money_even_in_recession-pid-1235553775r8Uv0Gk7.html
http://www.goodhousekeeping.com/money/budget/penny-pinching-for-cash
http://www.goodhousekeeping.com/money/budget/money-lessons-kids-nov02_3
http://www.goodhousekeeping.com/money/budget/survive-recession
,, |
| Total 13 vote(s). | | |
|
|
|
|
|
 | Messages/Opinions |
|
|
| | No messages yet! Be the first one to post a message here. |
|
Click Here to login and post message
|
| Indian Alumni and Students from the following Indian and Global Institutes are invited to be members of 6bridges.com: |
| |
| India |
| Business & Accounting Institutes : FMS, ICAI, IIFT, IIM(A), IIM(B), IIM(C), IIM(I), IIM(K), IIM(L), IRMA(Anand), ISB, JBIMS, MDI(Gurgaon), NITIE, NMIMS, SJMSOM(IIT Bombay), SPJIMR, TISS, XIMB, XLRI |
| Technology Institutes : BIT(Mesra), BITS(Pilani), COE-Guindy(Anna Univ.), DCE, IISc, IIT(B), IIT(M), IIT(D), IIT(G), IIT(K), IIT(Kgp),IIT(Roorkee), ISI(Kolkatta), ISM (Dhanbad), IT-BHU, Jadavpur Univ., National Institutes of Technology(RECs), PSG(Coimbatore), RVCE(Bangalore), VJTI |
| |
| Global |
| Business, Technology & Accounting Universities/Institutes : AGSM(Sydney), AIM(Manila), Caltech, Carnegie Mellon, Columbia, Cornell, Dartmouth, Duke, Georgia Tech, Harvard, ICAEW(UK), IMD(Switzerland), INSEAD, Judge(Cambridge), London Business School, Manchester, Melbourne Business School, Michigan, MIT, Northwestern, NYU, Princeton, Purdue, Queen's(Canada), Said(Oxford), Stanford, U.Chicago, U.Penn, UC Berkeley, UCLA, Univ. of Illinois-Urbana, Univ. of Southern California, Univ. of Virginia, Warwick, Yale |
|
|
