Money Management

Develop a spending diary

Knowing how your family spends money is key to healthy financial management. Once you know where the money is going, you can plan a budget that’s right for you.

	Ask all adult family members to use a notebook to record spending for an entire month.
	Keep a record of all spending – be it cash, credit card or cheque – so you can see where your money is going.
	Create a category for every type of spending in your family, from major expenses such as housing to miscellaneous day-to-day purchases such as allowance. Be sure to include your savings as well as finance charges on any outstanding credit or loans.
	At the end of the month, add up all expenses in each category to determine your total expenses per month.
	What you see at the end of the month may be very revealing and surprising.
	It’s a good idea to refresh your spending diary each year, as well as any time you have significant changes in your circumstances, such a shift in income, purchasing a new home or having a baby.

Create a budget and adhere to it

Creating a budget is a central element in managing your family’s finances.

	Identify where all your family’s income is coming from, including work and other sources such as investment income. You should also track when your income comes in (e.g. date of month) as well as what form you receive it in (e.g. automatic deposits versus cheques).
	Use your spending diary to match your total monthly spending against your total monthly income. Monitor your spending diary and budget for two months to determine how closely your real life experience matches up to it.
	Create various expense categories that mirror your spending diary and include the monthly amounts you allocate toward short and long-term goals. If necessary, fine-tune your budget categories and reallocate your income to meet your needs.
	Remember to budget for unexpected expenditures such as car trouble, replacing a broken hot water heater or paying for a school trip.

Save, save, save!

A penny saved is a penny earned. Simple, right? Actually, there’s much more to it than that.

	Take a percentage of your income (5– 10 per cent) and put it away in your savings account or another investment vehicle. Your goal should be not to miss any monthly savings payment.
	If one of your spending priorities is a particular big ticket item, such as a new stereo or appliance, save extra money towards that on top of your monthly savings, but remember to curb spending on big-ticket items that aren’t a priority right now.
	Talk to your bank about setting up automatic withdrawal payments so a portion of each pay cheque goes directly into your savings account, forcing you to automatically save money before you have a chance to spend it. This concept of paying yourself first ensures that your essential financial savings come before discretionary spending.
	Try curbing small expenditures such as expensive coffee or manicures and watch your savings add up.

Pay your bills on time

There are many ways to pay your bills each month: at your bank, by cheque, online or on a credit card. Choose a payment method you can maintain and manage.

	Open bills when you receive them and know your credit limit and due date for each account.
	Paying bills on time each month will help you maintain a good credit rating.
	If you have automatic bill payments coming off your credit card each month, make sure you consider those amounts when paying your monthly credit card bill.
	If you can’t pay your bills on time, contact your creditors and explain your situation, and then work out a payment schedule with them.

Use credit wisely

Many a times it is not possible for every Indian family to purchase everything they need– much less everything they want – without borrowing from time to time. Whether you borrow through a personal loan, a line of credit or a credit card, credit should be used to enhance your personal financial management, not become an extension of your income.

	Only make purchases you can afford to carry. A good rule of thumb is to ensure your total debt carrying costs on lines of credit, personal loans and credit cards (excluding mortgages) do not exceed 15 per cent of your net income. Say NO to any purchases beyond that amount.
	Pay as much debt as you can on any outstanding balances each month and always pay more than the minimum payment due. Be sure to pay down high interest debt first.
	Choose the right credit card for your needs. Match the features you need (e.g. a low annual fee or a low interest rate) against the features you want (e.g. points toward travel, groceries or gas) and see which card is the best fit.
	Do not borrow from one creditor to pay another.