tip tuesdays

The EMIs for my car loan from Axis Bank were automatically deducted through ECS from my ICICI Bank account. Recently, when I pre-closed this loan, the staff at Axis Bank asked me to additionally issue a stop payment for the EMIs through ICICI Bank. It’s just a precautionary measure, they said, and isn’t really required especially if you pre-close the loan well in advance of the next EMI. But, in my opinion, it’s better to be safe by taking this measure. All you need to do is to visit the branch, fill up a form, and submit it.

And, if you don’t issue a stop payment, what’s the worst thing that can happen? An extra EMI would be deducted but this would be credited back to you after some time — you wouldn’t have access to these funds in the interim. Another often suggested solution is to reduce your account balance to zero, but this might not be feasible for everyone and especially for someone like me who likes to maintain a single source of truth.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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When I consolidated my finances and started my investments in mutual funds, I opted for a Systematic Investment Plan (SIP) but the SIP-debits came from a lumpsum that I already had in my savings account. I think a better option would have been to park the lumpsum in a Systematic Transfer Plan (STP) and from there route the debits into the mutual fund(s) of my choice.

The SIP would be a better choice when you don’t already have a lumpsum to invest but instead rely on other regular sources of income such as your salary for the investment amount.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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When it comes to buying term life insurance, most discussions that I have had with friends and readers and that I have read online lead to a single question: “Can I really trust the insurance company to honor its commitment at the time of payout given that quite a bunch of them have a high claims rejection ratio?”

At the same time, most want to play it safe and stick with LIC given its sovereign guarantee (which, in my opinion and given the the state of world finance in general, isn’t something that you can honestly count upon).

A safe way out then would be to spread your “risk of trust.”

Suppose you’re looking for a cover of Rs 1 crore through term life insurance. Buy coverage of Rs 50 lacs from the insurer that you trust most and coverage of Rs 25 lacs each from two other insurers who you trust to a lesser extent. You get the same cover in total but you’ve also mitigated the risk to an extent.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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If your organization has a policy of paying out a bonus (sometimes called as performance-based pay or simply variable pay), you need to ensure that your salary offer mentions this fact. While most salary offers do mention this fact, you need to watch out especially when you’re given a salary increment — your increment letter should mention any changes in your bonus/variable pay.

I’ve witnessed a couple of friends for whom the change in bonus/variable pay wasn’t mentioned in their salary increment letters and who a few months later when looking for new jobs found it tough to prove this fact.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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I’ve previously written about how to cover for your household expenses in advance especially if you’re not paid on the last working day of the month. This technique also proves useful in a few other situations:

  1. When there is a delay — for whatever reason, be it salary processing, bank holidays, and such — from your employer in crediting your salary, and
  2. When you resign from your job and you don’t receive a salary credit for that month but instead receive a final settlement a few weeks later.

I personally am going through #2 — I won’t have a paycheck in July and my next paycheck will most likely be near end-September. The cash cushion that I have in the form of one month’s expenses is a life-saver. You can, of course, meet these obligations by dipping into your emergency fund or from your free cash flow, but I prefer having both one month’s expenses and an emergency fund as my buffer.

What do you think? What would your approach be?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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If you find yourself drowning in credit card debt and have no idea on how you’re ever going to repay all that debt, you can try the Dead on Last Payment technique. The method focuses on quick psychological wins — definitely what you need when you’re swamped with credit card debt.

Let me know if this method worked for you.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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At Central, I kept the [same day only] redeemable vehicle parking coupon in my pocket and conveniently forgot to produce it during billing. A couple of days later, at Reliance Timeout, I made it a point to keep the coupon along with the cash in my wallet and since I pay for most things with cash, the first thing I saw during billing was the coupon.

Generally speaking, if you usually pay with cash keep the redeemable vehicle parking coupon along with the cash in your wallet and if you usually pay with a card — debit or credit — wrap the redeemable vehicle parking coupon around the card.

This way, you simply won’t forget to redeem the coupon.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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At Pizza Hut, we were about to leave a service tip when D observed that the bill already had levied a 10% service charge. How a service establishment can fix a fixed service charge is beyond my understanding. Do service charges scale linearly with the size of the group being served? Would you leave a tip of Rs 500 when your bill is Rs 5,000?

On a general note, I’d prefer to not leave a tip when the bill already levies a service charge. And, I’d prefer to not host a party at that service establishment.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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Continuing yesterday’s thoughts, you have only two options when dealing with financial clutter.

  1. Keep it, or
  2. Close it.

What you decide really depends on your personal situation. But make that decision right now — else you’ll never get rid of that clutter.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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Here’s a tip that I read about some time back, implemented it in my own life, and found it to work.

When you withdraw cash from an ATM, don’t throw the transaction receipt. Instead, keep it in your wallet and each time you spend the cash that you withdrew, note down the expense on the back of that transaction receipt. It’s an excellent way to track your expenses.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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What do you think of this strategy for buying your next car?

I won’t get a chance to try this out at least until I close the loan on my present car.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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In an article on taxation, Outlook Money — June 16, 2010, suggests:

Buy your car in your spouse’s name. Then lease it to your company, which in turn can let you use it as an employer-provided vehicle. [Due to certain deductions, you reduce the amount of income tax that you need to pay.]

I’ve also seen variations of this theme that suggest buying your car in your father’s or mother’s or relative’s name. I honestly believe that it isn’t worth structuring your vehicle ownership this way just so that you can avoid paying a certain amount as income tax. That said, in general, you should never monetarily tie yourself to your employer — be it the mechanism: employer loans, car leases, and such.

Keep the car in your name. Pay income tax. Sleep without worry. That’s what I would advise.

What do you think?

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Here’s an interesting tip I read in Outlook Money, June 16, 2010:

A married and working couple can plan and claim Leave Travel Allowance (LTA) in all four years of a prescribed block. The husband can claim LTA in two out of four years and the wife in the other two.

Have you done this before? I’ve personally never claimed LTA this far in my career but I plan to try this tip over the next four years.

And here’s a great article that explains the ins and outs of Leave Travel Allowance.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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Reader Gopal asks,

I can see my total credit card dues over the Internet. Can I pay off these dues even before I receive a statement from my bank?

Sure. You can. In fact, I follow this policy [and I'd advise you to] — each time I use my credit card, I wait for the transaction to get posted and pay it off immediately. My credit card statement has a Rs 0.00 due each month.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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The only debt I have is my car loan and one of my short-term financial goals this year is to get rid of this debt (I’m debt averse; D’s obsessively debt averse). That said, I do have a long-term financial goal where I want to fully pay for my next car in cash.

How do I even come close to doing that?

Here’s an effective strategy that I came across:

Once the loan on your present car ends, imagine that you’re still continuing to pay the EMIs (or a higher/lower amount based on your circumstances) albeit on a hypothetical loan whose tenure is equal to the expected life of your present car since purchase minus the tenure of the loan that you just cleared.

Depending on this tenure, you’ll need to save/invest the EMIs on the hypothetical loan in the appropriate financial instrument.

I went further and cooked up a “My Next Car Savings Calculator”. This calculator gives you a projected amount that you’d have at the end of the hypothetical loan.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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Because,

The Payment Due Date is the last date by which the bank should receive clear funds post processing towards card payment, failing which, future transactions may not be honored and late payment charges and charges on revolving credit plus service tax will be levied as applicable.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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You’re trying to spend/save/invest money that you don’t have.

Given this definition of free cash flow, a negative value can mean:

  1. Your income is too low, or
  2. Your expenses are too high, or
  3. Your goals (and hence savings/investments) are unrealistic.

Cut-back first on #2 and then on #3. Even better — increase #1.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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Keep this one rule in mind and you won’t go wrong in planning for and meeting your goals. Don’t invest for short-term goals and don’t save for medium and long-term goals.

That said, here’s how I define short, medium, and long-term.

  • Short-term: Less than or equal to one-year
  • Medium-term: Greater than one-year but less than or equal to three-years
  • Long-term: Greater than three-years

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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Though most of us are paid our salary on the last working day of a month, there are many who only receive their salary by the end of the first week of a month. But your household expenses don’t wait till you receive your salary. If you belong to the latter group, here’s a good strategy to meet your regular household expenses till you receive your salary:

Let’s say you receive your salary only on the 7th of every month. Add up all well known household expenses (example: salary for domestic help, utility bills, groceries, etc.) that you expect to incur within the first seven days of a month. From this month’s salary, set aside this amount as a micro-emergency fund and use this to cover your household expenses between the 1st and the 7th of the next month. Repeat this cycle.

What do you think?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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Tip Tuesdays: How to Set a Financial Goal?

by Vinaya HS on March 30, 2010

in Finance

Here’s a real example for one of my financial goals.

Goal #1: Eliminate car loan debt

I want to eliminate my car loan debt by December 31, 2010.

Achieving this goal will make me debt-free!

To achieve this goal, I will:

a. Save 1 EMI payment (i.e. Rs X) and an additional amount of Rs Y each month from April, 2010 to November, 2010

b. Save Rs Z (outstanding principal + pre-clousre penalty – (8 x Y)) in December, 2010

Once the EMI has been deducted on December 01, 2010, I will pre-close the outstanding loan balance (Target: December 14, 2010).

It’s Specific, has a Justification, and details concrete Steps. In short, it’s Actionable.

What do you think? How do you set your financial goals?

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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