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Financial Planning 2: Cleaning up the financial mess.


The clean-up process:

Having made the list of what you own and what you owe, the first step is to clean up the present problems in finance.

High interest bearing debts: Reduce spending and try to accumulate money to pay off credit card balances and other high interest bearing loans. You can think of taking a salary advance from your employer or your banker can help find out some other options like initiating a fresh low interest loan for paying off all he high cost loans. Most of the loans you took years back may have been sanctioned at a higher rate and some banks may not automatically reduce the loan rates according to the present market scenario. You will have to go there and initiate the process for reducing loans.

Unpaid insurance premiums and lapsed policies: This is next in the list of financial mess. If you have subscribed to life insurance policies and it’s unpaid after the first few years of payment, track it and find if something can be recovered from it and avoid a total loss. Insurance companies either gives you the option to take surrender value or they might give you the option to revive the policy.

Idle money in various banks: Maintaining many savings accounts instead of one will result in funds locked up idle in different accounts. You may also forget inactive accounts in course of time. Hence prepare a list of banks in which you have opened accounts in the past and start closing down and retrieving whatever is left in those accounts. There is no point in maintaining so many accounts. Instead, bring all your money into one account.

Idle money with friends and relatives: Prepare a list and try to get back as much as you can. Preparing a list will tell you how much of your funds are with others.

Identify areas of wasteful spending : Try to find some areas of spending where money leaks without control – like Amount spend on smoking, alcohol and parties, Fines charged for delay in payments, Improper use of electronic equipment , Excessive telephone bill due to over use, Parking more money in savings account, unnecessary subscriptions etc…

Clean up credit cards: Most of the middle income people have more than one credit card. The combined credit limit of these cards is huge and it keeps pushing them to spend more. Credit cards are part of your financial life and it’s definitely an useful tool in emergency but it also creates problems if you are a reckless spender. Credit at finger tips and the option to convert purchases into EMIs makes people spend more than they should. These cards carry a very high rate of interest. So, if you have more cards , pay off the dues and decide to stick to just one card with a decent credit limit.

Sell off things which you don’t use anymore: Before it rusts and becomes a total loss, try to sell of things which you don’t intend to use anymore – like the DSLR, musical instruments, electronic gadgets , old computers , bikes , furniture and what not. Every house has a list of things that are not used at all. Covert all those things into cash and bring everything into your bank account. In the process, you free up some space too..

Check for other forgotten investments: Like the PF account or the post office savings account you opened years back. There could be many such small investments you made and then forgot it completely as you went up the ladder.

Have separate accounts: keep your personal savings accounts separate from your business funds and do not mix the two. This is more relevant for those who run small businesses. It will help you in many ways – paying taxes or finding out transactions that relates to business.

 Think of an emergency fund : Usually people keep credit cards as a back-up. Credit cards are useful in crisis, but it no fund. It’s a pre sanctioned loan at a high rate of interest. In case of an emergency, what you really need is a backup fund created from your savings.

 Create a financial calendar : Cleaning up finances also includes setting up a financial calendar so that you know when a payment is due. This is required to put your monthly payments inorder.

 Create a 5 minute financial check point : Every day before you wind up everything, just take 5 minute of your time to review all the financial transactions you’ve made. It’s a recall of what you did with money. This habit will pave way for more control on your personal finance side.

 Finally, never let stupid money thoughts rule you :  Thoughts like “I will never get out of my debts” or “I will never end up spending less” are not good when you embark on a mission like this. Self-inflicting thoughts have to be thrown away. Everything is possible.

By exercising the clean-up process, you will be able to optimize everything and find some cash in the process. The cash flow could be a onetime affair or it could be in the form of a monthly addition to saving.  Even if you manage to save a small amount of Rs.4000 per month, you’ve already saved funds that can cover up the cost of insurance for your family.



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