Looking at my networth on a regular basis now, I asked myself, where do I go from here now? To answer this I sat down with my finances and took a good hard look at things. I was in approximately Rs.21,000 of credit card debt, and a student loan of Rs. 250,000. Though my equity investments of about Rs. 40,000 give me mental support as I have no money in savings. To make the conditions worse, I have to marry in the next year (Indian marriages are way too expensive) and over that I want to buy a house within the next year, though my finances are screaming at me, â€œYou need to pull a miracle out of nowhere to achieve all thisâ€.
As if I could hear the screams, I made some major changes in my spending and saving habits. I have been following it for the past one month.
The first thing I did is I made a list of every single thing I had to pay out each month using Microsoft Excel. I made separate rows for regular expenses and put provision for 10% contingency. Then I removed those rows which were nonessential services to me.
1. I removed the news-paper subscription (now I am having a free e-paper from the Times of India and the Economic Times).
2. I reduced the provision for cell phone bill (I am working consciously to reduce the phone bill).
3. I have started cooking at home which reduced my expenses on eating out.
In the end, I was able to cut my monthly spending by almost Rs. 2000, money I could use to help myself get out of debt . I am planning to cut down my credit card bill by Rs. 12,000 and after this month, the outstanding against my card shall remain at Rs.8,000.
I then went back to my essential bills and looked at the loans carefully. My goals were to reduce or eliminate these. I went through my service rule book to search for some provisions for money advance from my employer at any lower interest rate. To my amazement I found that I can take an advance upto Rs. 50,000 with 0% interest payable in 10 equal monthly installments.
I plan now to accumulate some 20,000 in the coming months and add these interests free Rs 50,000 from my employer to get rid out of my personal loan. I feel that it will take a few months of dedicated approach towards expense cutting to get out of this bad debt situation. To address the issue of marriage and house purchase I shall plan only after I succeed in getting out of the bad debt that I have accumulated.
After reading this comment from Ryan posted at Blogging away debt I started thinking upon the general conditions which are responsible for getting us into debt. I started comparing the comment by the term Overclocking used in electronics.
â€œOverclocking is defined as making a particular component (of your computer hardware) run at speed higher than its rated speed. When you make the component run faster, you obviously derive better performance from it without spending extra on faster hardware. This is done by altering the default settings, providing extra power to the component and making sure that there is a proper cooling in place as components tend to heat up when they are clocked.â€
Premature consumption, I would agree as my reason for getting into a debt trap. Getting a credit card in hand and the ability to pay in the next billing cycle made me to purchase things which I couldnâ€™t afford and ended up buying many things. Finally I had to convert my purchases into installments. Now I am paying off those installments for the past nine months. Initially I took measures for reducing the debt but after nine months I still found myself into the same mess primarily because of loss of focus.
Now again back on track (focused for debt reduction) I want to speed up the process of debt reduction much similar to Overclocking but I realized that this is not easy, I have a single constant source of income (my salary). I have given a thought on the idea to take more debt at a lower interest rate invest it in the booming Indian market and after 3 months pay off my CC debt. Borrowing money from my parents and pay off the debt and then later on pay back in installments without interest. But again all these solutions would â€œover heatâ€ me in the sense that I would still be in debt (some other kind of debt instead of credit card debt).
So finally I decided to wait, control my spending, (have not given a thought to alternative source of income), have a disciplined approach for debt reduction and get out of debt.
Itâ€™s not like a life time opportunity, but may be a life changing one. My employer gave me an option to work either from Bangalore (my current location) or from Hyderabad. After doing some research (some phone calls to my friends) and my previous experience of living in Hyderabad I found out that cost of living in Hyderabad is approximately 25% less than that of Bangalore.
Coupled with salary hike and transfer allowance I feel moving to Hyderabad would be good deal. That would completely remove my credit card debt. But on the flip side the growth opportunities will be lower and if I get married to a non-working girl that would mean a hole in my pocket as it would take nearly one year for her to get a job in Hyderabad.
After analyzing the pros and cons I feel that I should move after 6-7 months, in that case I shall be able to find a working wife (I believe in arranged marriage) and by that time I shall be able to reduce my debt by approximately Rs 50,000.
Last week was particularly well the highlights of last week were my phone expense control and my food expense control
I spent nearly fifty rupees over phone during the last week. It was exciting as this has brought some discipline in me while speaking on phone. Now I speak to the point and donâ€™t waste time in trivial details over phone.
I cooked food at my place and completely stopped eating out, not even at the weekend, this was another achievement as it saved me nearly Rs 300 for the week.
One glitch was that of the weekend on which I went for a movie which cost me Rs 346/-, the movie compensated my weekly savings.
This was a one time affair, I generally prefer watching movies on television or a DVD so the amount spent on movie will not be a regular affair and in the long run my control over my expenses will give me enough leverage for discipline and savings
I am not able to do any posting for some time now, it is because some unrest on Cauvery issue in Bangalore and some dose by my boss over job issues, though it is much calmer today (both of them). I am very happy today that my post has been selected on carnival of investing hosted at Money Smart Life.
Getting on with the update:
Last week was not particularly well when I think of frugality.
Twice in a week I had to go in an auto that escalated my cost of transport by Rs 200/-
I spent much on phone too. When I received my phone bill, it was only Rs 87/- less than my phone bill cap. I have decided a much lower amount for my phone this month. I ll try to manage it around 50% of my phone bill cap and subsequently I shall be reducing my cap by asking the service provider.
Regarding food; I didnâ€™t cooked at my place and for the whole week ate outside. This cost me dearly. I hope to control my spending on food this week.
I am planning to have a budget now, after a net-search I feel I shall be using the Pearbudget offline budgeting tool and track my spending. This will help me Check my frugality and spending status on a weekly basis.
After reading this post by Golbguru, I thought I should define frugality for myself. I was amazed that people do such things to gain a temporary advantage which I call as cheating.
In India we find these replacements very rare, change of barcode! I feel here the hi-tech crimes are very less. But still for general people like me, I think defining ethics and frugality will set parameters of the alien domain over which I shall never travel.
Most simply ethics for me is the act that my heart will not feel bad after doing it. Most people won’t believe but I have stopped lying, and I lie only in extreme case where I am doing for the good of someone.
Frugality for me is something altogether different. It’s controlling my natural behavior (e.g. impulse buying etc.) to avoid unnecessary expenses and getting myself in my budget.
These are the long term definitions to which I will stick over my life time. Looking from an investing perspective I see this as an intangible asset which will ensure that my children and people near me get a rub-off effect and help them to become better people.
This week onwards I am starting Personal Frugality Week I want to live this week as frugal as possible to save the maximum amount by month end. I have observed nearly two heads where I spend the most.
Food : I spend nearly Rs 300 each weekend on food. Reason eating out, i.e. Rs 1200 a month. I spend nearly Rs 30 (consolidated) if I cook at home. Which implies I spend Rs 270 extra over food just over weekends, If I start cooking at home on weekends then I will be able to save Rs 1080 monthly, which will be a pure surplus for investment and can be swiped into an SIP.
Telephone: This is the other expense that I want to get rid off nearly 10% of my salary goes into phone bill. I need to check this too. I have changed the billing plan for my connection and expecting a reduction of Rs 1900 from the next month onwards.
I shall be working on other minor things but focus will be on these two. I have started this series to check my weekly spending and to generate a disciplined amount for investing. Every Monday I will be posting the update of the whole week and the improvement over the past week. So do keep visiting this post every Monday.
I am an impulse buyer and I want to be financially free, for me this phenomenon doesn’t go hand to hand, at least in my early times of working towards my financial freedom.
I am from the typical Indian middle class who is supporting the great Indian Boom on the world map. Like many other; I also want to buy branded garments, super gadgets, and nice holidays. For the past few days I was thinking to buy a DSLR, Nikon D50, by taking a personal loan @ 14% per annum, then I came across this post, and gave some thought over it, and finally realized I don’t really need one, this will create an unnecessary liability for me and increase my debt burden. I already have much to pay.
The solution that I found for my impulse buying behavior, is
- Wait (at least 10 seconds)
- Don’t buy (after 10 seconds I don’t feel like to buy)
It saves lots of money for me, this also applies for the Magazines and the books I buy on a weekly basis leave them at my study in a drawer. Refraining from Chocolates and ice-creams too has saved some bucks of me. Many of us contend that cant I live my money rather than living frugally, afterall for who I am earning for, to them I can only say one line from Rich Dad Poor Dad, â€œstart creating assets, and not liabilities, if you want to be financially free.