Stop Bingeing! Get Fitter! A D.I.E.T Plan for Improved Financial Health.

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Stop Bingeing! Get Fitter!
A D.I.E.T Plan for Improved Financial Health.

It is the biggest festive season of the year, a time we all look forward to. It is also the time when many of us indulge mindlessly in Bingeing; Bingeing on Sweets, Entertainment, Shopping, and the list goes on and on. While bingeing can manifest itself in countless ways, one thing is certain: regardless of what we choose to binge on, bingeing is sure to have a debilitating impact on our physical, emotional and financial health. Bingeing, along with excessive Debt, can erode our hard earned savings, weaken the very foundation of our Financial Well-Being and leave us vulnerable to the uncertainties of the future.

In this blog, we talk briefly about the financial impact of bingeing and excessive Debt, and how one can overcome these challenges by following a Financial D.I.E.T Plan. A Financial D.I.E.T focuses on FOUR key areas that demand our immediate attention; these are:

(D) Debt, (I) Income, (E) Expense, (T) Taxes

So here’s how, by focusing on these FOUR key areas, you can cut down on your financial excesses and lay the foundation for an improved financial health.

Eliminate Debt: Debt can be your biggest roadblock on your way to achieving your financial goals. Here are some of the most popular forms of debt, and how one should approach them.

 

1. Credit Card Debt / Outstanding: This is probably one of the worst forms of Debt in terms of the exorbitant penal interest rates applicable. Debts like these need to be foreclosed at the earliest opportunity available since they can, in no time, snowball into an unmitigated financial crisis. In case you find it difficult to clear your credit card outstanding at one go, make sure that you convert your outstanding amount into EMIs to at least benefit from a lower rate of interest. While E-Commerce portals and Financial Institutions lure you into occasional festive time splurges, by way of discounts and offers on your Card, it is in your own interest to understand the immediate and long term ramifications of your actions on your overall financial health.

2. Personal Loan: While one might argue that certain financial exigencies might force one to avail a personal loan, it is equally important to understand that the best way to tide over financial emergencies is to have a contingency fund in place; a fund that can comfortably cover at least 6 months of all your non-negotiable expenses. More importantly, given the high interest rates on personal loans, these are best avoided. By the way, for the ones who have already availed these loans, the only good thing to do now would be to foreclose them at the earliest instance possible.

3. Car Loan: A car could mean many things to many people. For some it could be an object of desire. For others it could mean a status symbol. While for a good number of people the decision to buy a car might be driven by peer pressure or other psychological factors, there are an equally good number who might consider buying a car purely for its usefulness in their personal lives. For youngsters though, who may have just kick started their journey towards financial independence, it is important to make sure that the decision to buy a car should be rational, and must necessarily be driven by its utility value and not by any other considerations whatsoever. Secondly, a car, being a depreciating asset, will ultimately go down to scrap value in a matter of time. Hence it is extremely important to make sure that you aren’t taking a loan to fund a depreciating asset like a car. For the ones who have availed a car loan, it’s better to foreclose it as the earliest.

4. Home Loan: Home loans do come with a host of benefits such as competitive interest rates, tax benefits on both principal and interest, income linked subsidies for eligible individuals. These loans when used judiciously can help the customer derive maximum benefits. Thus, any decision to foreclose a home loan should be taken after carefully considering the benefits offered by these loans. An important thing to note though is that, how much ever be the benefits associated with a Home Loan, the fact remains that beyond a point, it is bound to leave a dent in your finances.

While certain types of Debt, at times may be unavoidable, one still needs to exercise caution when availing any form of Debt. With quick and easy money available at the tap of a button, there is a growing propensity among individuals, especially youngsters to fall for the lure of short term splurges, eventually leading them into a Debt Trap. Thus reducing one’s exposure to Debt, or better still, becoming debt free will be a giant leap towards improved financial health.

Increase Income: While Financial Planning helps you make the most of your present savings, it is equally important to make sure that your savings grows at a reasonable pace too, for you to see any meaningful growth in your wealth over a period of time. Our disposable savings can grow only when there is consistent growth in our income. Thus while managing our current savings is definitely going to be our prime focus area at all times, increasing our disposable income is also of equal significance. Hence, focusing on our personal skill building and career growth is extremely important from a financial well-being perspective.

Reduce Expenses: One of the best ways to curb your spending is to undertake a serious budgeting exercise. While undertaking this exercise, you have to make sure that your family is involved too. Budgeting is a simple yet powerful exercise that provides us with ample clarity on the nature of our spending as well as on our degree of spending. For e.g. out of my total monthly spending, how much money do I spend on fixed (non-negotiable expenses) and how much of my spending is discretionary (that which is not absolutely necessary at this point). This realization helps us plug the leaks in our spending habits. While the non-negotiable expenses are critical expenses and can’t be done away with, it is the discretionary ones that one can look at targeting if one feels the need to save more. Thus budgeting will help you decide how much you can save out of your current income without seriously compromising on your life style. It helps us set aside the savings for each month right at the beginning of the month i.e. even before we begin our spending for the month. It is in this regard that budgeting as a family exercise can be really value adding.

Optimize Tax Outgo: From a tax savings perspective, it is important to choose the appropriate tax regime (Old Tax Regime or New Tax Regime) as it can have a significant bearing on the taxes saved. The choice of a suitable tax regime depends on the number and type of tax savings options / deductions (e.g. 80C, 80D, 80CCD(1b), 24(B)) availed in a given financial year. Note that the new tax regime disallows some of the most popular deductions that we have been availing under the old regime. Hence this aspect needs careful consideration before opting for a suitable tax regime. Ultimately, after deciding on the deductions to be availed and the tax regime, to derive maximum benefits, one has to pick instruments that fare better both in terms of risk adjusted returns and liquidity. Once the right instruments for tax savings have been identified, invest within the limits defined under each section to leverage the benefits.

Conclusion:
Following this D.I.E.T. Plan requires us to be Prudent, Patient and Disciplined in our approach. For many of the young, the momentary thrill of extravagance and indulgence overpowers these important attributes, and makes them fall for short term pleasures. Awareness, beginning at a very early age, along with a balanced D.I.E.T seems to be the only solution to nipping this problem in the bud.

A balanced D.I.E.T not only reduces your risk of financial collapse, it will, over a period of time, help your savings grow in size. With a consistently growing Savings Kitty, you will be able to deploy a larger chunk of your savings to efficient instruments.

So Stop Bingeing … Get Fit with a balanced D.I.E.T… Lunge ahead towards your Financial Well-Being.
 
 

About the author


Deepak Rameshan, CERTIFIED FINANCIAL PLANNERCM, Dip TD, MMS.
Deepak Rameshan is a CFPCM professional, and has been working in the financial services domain for close to 13 years. He holds a Master’s Degree in Management Studies and a Diploma in Training & Development and has been actively engaged in Training & Content Development during this period. As a Personal Finance Enthusiast and an avid researcher of the subject, Deepak has delivered several Investor Awareness Workshops over the years covering areas such as Risk Planning & Insurance, Retirement & Goal planning, Tax Planning and a few other specialized areas. He takes keen interest in writing and has penned numerous articles for this blog, addressing some of the most relevant concerns that individuals face with respect to their finances.
“Financial Planning Standards Board Ltd. (FPSB Ltd.) is the proprietor of the CFPCM, CERTIFIED FINANCIAL PLANNERCM and marks outside the United States, including in India, and permits qualified individuals to use these marks to indicate that they have met FPSB Ltd.’s initial and ongoing certification requirements.”
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