Managing Difficult times : Financial Planning
Abhay is worried a lot now days. The family budget has gone out of control due to rising costs of grocery, vegetables and other household expenses. The annual vacation to the native place near Bhubaneswar during Durga Puja has to be abandoned this year. The EMI of the home loan has increased by 20% since last year due to hike in interest rates by his bank .The school fees for the son Subodh and daughter Malini has gone up by more than 18% this year.
The default in credit card payment has added to the problem. The monthly SIP(Systematic investment Plan) in five MF schemes for the higher education , marriage of children and for retirement is facing discontinuance due to non availability of surplus income for investment. He had a hard time in convincing his family to forego the weekly outside dining out. Sunita , home maker, is watching the situation at home in desperation.
Abhay and Sunita approached a fee only certified financial planner for a possible way out of the difficulties. After a lot of number crunching, the financial planner suggested to either increase the income of the family or to control the expenses. Abhay Company’s sales has declined and the chances of his promotion or increase of his salary is remote and there is no possibility of higher increase of his salary for another 3 years.The industry is facing problem and he may not be successful in changing his job. Both Abhay and Sunita had decided after the marriage,18 years back that sunita will focus on home and children. Now she finds it difficult to think about a job. The only alternative is to control the family expenses and they were given the following tips:
- Save money on transportation: Instead of using own vehicle for going to office, a pool car or travel by train is preferable.
- Do not waste electricity: The monthly electricity bill which was Rs 1100/- last year has increased to Rs 1800/- now, although consumption of units remains almost the same. The family can switch off lights, fans, air conditioner and other electrical equipments when not in use and bring down the consumption of units.
- Look for bargain deals and discounts: They can bargain on grocery by bulk purchase and look for discounted prices on dress and apparel, electronic items and go for festival discounts.
- Get the mortgage costs down: The banker can be approached to revisit the terms and conditions of the home loan. The EMI can be reduced and the tenure can be increased so that the monthly burden of EMI can be reduced. In case the loan interest is very high vis- a-vis the competitors, Abhay can either refinance the loan or switch over the bank which will be charging lower interest.
- Bring lunch to work: The cost of dining out has also increased due to inflation. Carrying lunch to office is advisable not only from cost reduction point of view but also from health point of view.
- Lower phone and utility bills: The family can review the call packages and select cost effective schemes for the mobiles. For internet at home, a broadband connection instead of individual dialup connection can be preferable.
- Watch movies at home: Movies are now available through DTH(Direct to home connections).The family can visit multiplex to watch the latest movies on weekdays instead of weekends
- Exercise at home: Instead of visiting Gyms, the family can exercise at home .Daily walking is also a good option.
- Restrict Usage of plastic money: The family is fond of weekly visits to Malls and purchase life style items by credit cards. The purchases of less useful items can be avoided and credit card payments can be paid before the due dates.