Category: My Money

Investing With Debt

This might seem huge risk to any body who is reading this. I have applied for a loan from my employer. As per the service rules of my company I am eligible for an interest free loan of Rs 50,000/- payable in 10 equal installments. This loan would put me in some more debt (you can see my current debt position here), but this would be the first time that I would be using the debt amount for leveraging my financial position.

For me I cannot see idle cash sitting around with me and doing nothing. I want it to get moving and for this reason i went for that loan. The options that I have after taking the loan are:

  • Pay off debt
  • Invest in Tax Savings Instruments
  • Purchase of Mutual Funds
  • Go to the stock market

Continue reading →

Networth Update Dec’07

This month was good from the expense point of view. I spent much less and saved a lot. However, I didn’t do any investments this month. Whatever growth you can see in the stocks and the mutual funds is the capital appreciation. I have started my emergency account as planned with a goal of Rs 30,000/- this year. One more thing that I want to point out this month is the interest on my Employee Provident Fund (EPF). I am not adding any interest on my EPF and a cumulative interest shall be added after I receive my EPF statement from my employer.

This month I thought that tracking my networth is one way to track my financials but it would be great if I track my expenses too. I have thought of a graph in percentage that I would call as a consumption wheel. I shall put my investments too in the consumption wheel (investments are equivalent to an expense to buy future). My goal would be to reduce my variable expenses. The other goal would be to increase the investments category.

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Coming over to this months performance I would say it is a significant improvement. My networth grew by 7% almost twice that of the previous months growth. The assets also grew by 16.06%. This is a major improvement. I want to increase my asset base to such a level that it can finance my liabilities. I have used my accumulated assets (stocks) to pay off my credit card.

Instead of paying the debt at a slow pace I prefer to have a dual approach. Pay the debt slowly and side by side accumulate money at a greater rate of return (than the interest rate that I am paying) and then make huge payments to kill the debt. Till now I am successful, I am going to try this approach for my personal loan and the student loan too.

Networth Update Nov’07

So my networth this month is Not positive :( well it seems that it will take ages for me to get into the positive zone. Today I extrapolated my future earnings and spending to arrive at the time that I will take to have a positive networth. I found that it would be somewhere after one and a half years. Though I will not be debt free but moving into the positive zone would certainly be a fillip.

One would think how I can imagine the positives of getting into a positive zone if I have not experienced it. Well, there was a time I was debt free would be the simple answer. But no! The answer is rather more simple, this month I did something special, I got out of my credit card debt altogether.

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A long period of extreme frugality made me accumulate enough money. This money I put into stock market and when the market was doing well I sold some shares to pay for my credit card debt. Financing my bad debt with an asset was probably not a good move in some finance whiz books but it sure gives you a moral boost and avoids the side effects to a certain extent.

Last month the networth grew by 3.94 % and now with the credit card debt gone I will have more ideas and more spare money to grow my networth furthermore.

Now what next? I think the other positive that’s going to come out of this is that I would be able to channel some money to my emergency account and some for asset creation. This implies that I shall be able to move out from extreme frugality to just frugality. For the time being I can think of only these two positive effects.

I can now eye on the huge personal/utility loan. Soon I would be devising a plan to get out of it. The student’s loan can hang on for a while as its interest rate is too low and I am paying the interest regularly so no increment in the amount. It feels great! Wish me luck

Networth Update Oct’07

After a disciplined frugal month, I was able to reduce my credit card debt and my personal/utility loan; I have reduced my cash balances to a minimum with no provisions for contingency/emergency. Currently I am not looking at my students loan as i am planning to get out of it by paying a lumpsum after a few months.

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Networth increment is of 2.87% in the past 20 days(see my networth as on 10th October’07 here).
The important thing for me here is that total assets increased and simultaneously my liabilities decreased.

A very tough month ahead for me, as this is the month of festivals and Diwali (Festival of Lights) coming up on 8th of November, my birthday too is on 4th November. My next bike servicing/repair is also scheduled in the next month. I am expecting huge spending in the next month but I shall try as much as possible to remain frugal after all I have to get out of the debt as soon as possible.

The plan for next month

I am planning to remove my complete credit card debt.

I wanted to pre-close my personal/utility loan but I figured out that I shall be paying an amount equivalent to the amount that I shall be paying in installments over the loan tenure. So I dropped the idea.

Now, I am planning to take the interest free advance (which initially I planned to take for loan repayment) from my employer and shall be putting into the stock market. I know that this is a huge risk but my plan is to create more assets for myself and my salary shall service the payments for this advance.

Where Do I Go From Here

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, “You need to pull a miracle out of nowhere to achieve all this”.
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.

Getting to know my credit card

After into such a debt-full situation I finally decided that it is time to get acquainted with my credit card in a better manner.I have a Citibank-Indian Oil credit card (Mastercard) that I am using it for the past 10 months. Below are the features and charges for my CC.

Exclusive Features:

1 Reward point for every Rs 200 spent on the card
3 Reward points for every Rs 200 spent on gasoline at Indial Oil (IOC) outlets
No transaction fees applicable for buying fuel at IOC outlets.

Each reward point is equivalent to Re. 1 and can be redeemed for fuel, lubricants at IOC outlets.

If I reflect back and see my CC usage I have never been late in payment and most of the times I have paid in full. I was happy till today as I came to know of the hidden charges that I have paid already without knowing them.

I have used my card once for air travel and many times for rail travel, I have made three international transactions, paying for GRE and TOEFL entrance exam fee for my brother and paying for web hosting. I now realize I have paid huge transaction charges without even knowing them.

Till date (Ten months period) the total amount that I have spent on my card is Rs. 85,243.48 this includes the interest charges, transaction fee and service tax. The total charges I have paid on my card is Rs.4721.32 which is around 5.9% of my total spending and nearly 20.78% of my one month’s salary. The points that I have earned on the card are a measly 640 which are equivalent to Rs 640.

So despite making full payments all the year (missed once or twice) I paid such a sum as charges.

The learning from this analysis:

I do not have to make any international transactions on my card, no balance transfer, no railway/air ticket booking as all this eats up my money in the form of transaction charges. I should use the card for fuel purchase as it will fetch me points and no transaction charges. One advantage that I can see from my card is that it enabled me for this analysis and I could analyze my spending pattern over these months through the monthly statements that I received. Continue reading →

A Five Stage Process of Getting Debt Free

It’s over a year and a half that I am in a bad debt situation and surprisingly it’s nearly one and a half years that I am into a paid job. If I correlate the two then I can conclude that steady income flow increased my debt taking tendency. In other words I will say that the security of getting my paycheck made me to overspend.

When I gave it a thought so as to find the reason for the above I could come up with only one reason I can pay it later when I get my paycheck. If I talk in time frames then I was spending future money into present but the problem with this concept is that you cannot account for future expenses (always) which come as an emergency e.g. bike/car repairs, health problems and many such unforeseen incidents/events.

So what happens next? I have already spent that money in the past and now I am stuck with a high credit card bill with no money to pay for, the result a bad debt and more importantly a way to a debt trap.

The cause: credit card spending! No, the cause here is trying to afford that you can’t just by assuming valid reasons for buying at that moment, but later in debt trap you feel that you could have deferred your purchase. For example, I need a new car, (mental process: the car I am driving is making sound, the mileage is very less and asks for more maintenance so why not replace it, I am getting a good deal with XX dealer). Next day you are with a new car along with a big debt on your head.

Now you are desperate to get out of it but you can’t as you cannot overclock your debt reduction process due to a simple reason, you don’t have any extra source of income and the debt brings interest and other charges with itself which further enhances it.

In this case my mind stopped thinking constructively for alternatives for reducing the debt as it is already preoccupied by the huge debt. The result, time wastage over trivial things and not be able to devise a plan. So what should I do? Well there is a way, which I am following and trying to get out of debt. Continue reading →