Engineer's Finance

All of us have Credit Cards (generally more than 2), it is a must to have Credit Card these days (fashion statement).

These days when I go for shopping the first thing I get to hear at the billing counter is “How is the payment made? Through cash or credit card”. Most of the guys don’t understand how the credit card works. All that they do is just use the card for just shopping and don’t plan up things. Shopping is done at random, no plan is ever done and mostly we buy things we don’t really require. It might not be a necessity at all still we fancy buying them. (Anyways it is not my cup of tea 🙂 ).

What I want to convey is Using credit card is always a good option until unless you screw up your finances. This is how I use my credit card for my benefit. Whenever I want to buy something that costs more than 10k then I plan to buy it just immediately after my billing cycle ends. In this way I will have at least 2 months salary to pay back the amount without paying any interest. Confused???

Think that My billing cycle is from 20th of previous month to 19th of present month. Any purchase made on 20 or after that will be charged to me in the next billing cycle. Once the bill is generated the bill has to be paid with in a minimum of ten days to fifteen days. In my case I get a grace period of 52 days i.e. I can use the amount without any interest for 52 days.

(Does that make any sense to you??) So most of the time when I make a big purchase which costs more than 10k I make sure I do it with in 20 to 30 of the month on the card, so that I can have two months salary to repay back and I make sure that I do that. This is one of the most easiest way to tame your card.

Credit card’s Minimum Balance

Ever wondered how the Minimum Balance is calculated??

This is how it is done.

Interest = APR/100 x ADB/365 x number of days revolved
Total Amount = Outstanding balance + Interest
Minimum Payment Due = 5% of Total Amount

where APR stands for Annual percentage rate and ADB stands for Average Daily Balance.

For e.g.
I make a purchase of Rs. 1000 on 3rd of May and My bill is generated on 20th of May and my due date is 12th June. If I make a payment of Rs. 1000 on or before 12th June then no interest will be levied upon me for the transaction. Even if I make a payment of Rs. 999 it is considered to be a partial payment and interest will be calculated. Assume that my APR is 2.

My Minimum Payment due is 5% of the purchases that is made for the current month that amounts to 5/100 * 1000 = Rs. 50. Now I have an option to pay either Rs. 50 or Rs.1000 if I make any payment between this range is not worth for me since I need to pay the interest for the purchases.

Assuming I make a payment of Rs. 500 on 12th June. My balance is Rs.500 but the interest is calculated for Rs. 1000 and not for Rs. 500.

Average Daily balance is calculated in two ways :
1. Including new purchases.
2. Excluding new purchases.

Consider for Scenario Including new purchases :

I make a new purchase of Rs. 1000 again on 30th May.

Now my bill looks like this:

1. Purchase on 3rd of May = Rs. 1000
2. Paid on 12th of June = Rs. 500
3. New Purchase on 30th of May = Rs. 1000

When my bill will be generated on 20th of June:
Interest calculation :
Initial purchase * APR/100 * No. of days
1. 1000 * 2 /100 * (20th June – 3rd May) = 20 * 47 days = ADB
2. 500 * 2 /100 * (20th June – 12th June) = 10* 8 days = ADB
3. 1000 * 2 /100 * (20th June – 30th May) = 20 * 20 days = ADB

Average ADB = (20*47) + (10 * 8) + (20 * 20) / 30 = 47.33

So my total amount payable is : 1000 + 500 + 47.33 = Rs. 1547.33
Minimum Payment due is 5% of Rs. 1547.33 is Rs. 77.37

Consider for Scenario Excluding new purchases :

Calculations remain the same for this except we don’t include the new latest purchase we made and hence ADB = (20 * 47) + (10 *8) /30 = 34

So my total amount payable is : 1000 + 500 + 34 =Rs. 1534
Minimum Payment due is 5% of Rs. 1534 is Rs. 76.70

Conclusion:
We are ignorant about the calculations involved in the credit card’s interest calculation. Most of the financial institution include the new purchases as well and then calculate the interest. If you skip once paying the entire amount you will be charged interest. There are various methods of calculation that the financial institution use of derive money out of their customers. Better be careful. Whatever I have provided is just one of general methods. Please read your credit card documents carefully and analyze your position and try to pay back the balance in your credit card as soon as possible.

In Citibank silver credit card (the one that I have) for the amount Rs. 5000 if I pay only the minimum balance every month then I need to pay for 6 years to become debt free.

I am sure none of you bothered about these calculations.. Neither did I for sometime.. Once I did and it made a difference in my life.. Please be aware of this..

Keep visiting for more insights..

Spending Habits

Some habits are born with you and die with you.. Some can be changed..

Spending Habits can be definitely changed for sure, since I did change it.. 🙂 I was not tracking my expenditure for a long time and I am sure most of us are like this.

It was hard for me to track the expenditure(Honestly, lazy). I decided to track it. For that I wanted to do something. Then I used google’s excel sheet.. I used a simple spreadsheet. which contained the following information.

Expenses
sl. no Date Food Movies Petrol DVD Clothes Snacks Books Misc

I used to update it daily. I was not sincere in the beginning. So the first month I could not get the correct figures. I cursed myself for doing it and later again I tried to do it. This time I did populate the data meticulously and then after three months of data collection, I figured out my spending pattern. This clearly showed me where I was pouring my money and whether it is possible for me to change it if needed.

I made up my mind to reduce a few and stop spending few areas (in Misc). This way I did put a check to my spending habits.

This seriously helps..

Self Control

Self control is the most essential part to control spending habits. We are forced to buy new gadgets, DVDs, clothes and so on. If we learn to control our desires not to indulge in buying spree we can have finances in shape.

EMI (Easy Monthly Installments) has changed the course of life for most of the people. It gave them enough spending power which they could not dream of. Many people thought it was a boon but in reality its a curse in disguise. Let me elaborate on this:

Think that I want to buy a Television which costs Rs. 1000 and I have just Rs. 100. If I save up Rs. 100 for next ten months then I will have Rs. 1000 and within a year I can own that television. But instead I prefer to buy Television with loan. The loan offered to me is Rs. 900 at 5% interest per annum (i.e. I have to pay Rs.105 at the end of the year if I borrow Rs. 100).

The EMI for the Television for twelve months is calculated in the following way:
(1000 – 100 ) + [(1000 – 100) * (5/100 )] / 12
==>(900 + 900 * 5/100 ) /12 = 945 /12 = 78.75
At the end of one year I will be paying Rs. 1045 for Rs. 1000 Television. If I to buy the same Television by saving money then it would have taken ten months and strict discipline of saving money (which most of us lack).

We are willing to pay more just to make sure we get the things at the time we want. There are complications in life and every time we cant say that we can make the payments at the right time. This will cause problems financially and we will end up paying much more. I have taken a very simple example to keep the maths simple and you guys know what is the Rate of Interest in the market these days.

My Conclusion is always try to save up money and plan up things before you just go buy it. Don’t buy things on credit this is not a good sign for your long term financial freedom.

In my previous post, My intension of saying decrease the expenditure does not mean that you should not spend money at all. I meant that we have unnecessary expenditure and we should cut it down. For example, we are going to restaurant on a regular basis say thrice a week. On each occasion we will spend at least Rs. 200 – Rs. 300 for couple of people. Do you think is it really worth it? I don’t think so. If the same trend continues then we end up spending Rs. 28,800 – Rs. 43,200 per year. (You might argue that we wont go that often but its just hypothetical) All that I am telling is this is not a good habit try to change it. In Bangalore, everything is costly GOD KNOWS FOR WHAT REASON.

About my crazy habit: I am a movie buff and I love watching movies. But the price I am paying..

Read on..

In Tamil Nadu and Andra Pradesh the balcony ticket in an AC theater does not cost more than Rs. 100 on a weekend where as here it reaches up to Rs. 250 – Rs.300. I watch at least a movie every week in a good movie hall (Helping producers to become Rich). This habit of mine is burning a big hole in my pocket.. Yesterday just while returning back from my office I was just doing the calculations and this is what it revealed.

I watch at least 3 movies per month, per movie I spend around Rs. 300 to Rs. 500. This includes my ticket and snacks.

Generally I go for movie halls like PVR, Inox, Innovative Multiplex and similar types where the ticket itself costs me around Rs.250 to Rs.300 depending on the movie. In the last six months I would have spent close to Rs. 5400 – Rs.9000. I am sure I am at the higher end of the range. Do you really feel this is essential??
I love watching movies but the price I am paying is far too much. I am pampering myself but the price is definitely high.

I have decided to address this issue with the following things:

1. Try to reduce the number of times I go to movie hall to watch a movie. Say once in a month.

2. If the reviews of a particular movie is good and I have to watch it, then rent the DVD from a local store and watch it.

3. If the movie is good then its worth buying the DVD if it costs less than Rs. 100 rather than renting it else just rent it and watch it.
(Please refrain from buying Pirated stuff and help the Film Industry get its due)

These measures of mine will surely make me happy as I am watching the movie (pampering myself) and also financially it will add money in my pocket as I am consciously making an effort to reduce the expenditure (towards the goal of financial freedom).

Expenditure On the GO!!

When I was earning say Rs. 100 per month as my salary, My Expenditure was Rs. 30. I was thinking loads to reduce this Rs. 30 to Rs. 20 – Rs. 25. But not once I could manage to do that. I have tried to reduce my expenses from Rs. 30 for more than an year and it did not happen. I gave up. 😦 (Not good sign). I could not figure out the reason as to why this was happening.

After an year I got a hike say Rs. 200 per month. I thought my expenditure would be Rs. 30, but to my surprise it was always more than Rs. 60. Still no clue why this happened. Then one day I figured out the reason, it goes like this. When I was earning Rs. 100 I was spending Rs. 30 now that I am earning Rs. 200 I am spending Rs. 60 or more just cause I can afford doing that and back of my mind I always had a feeling that I can do whatever I want with my money. I was not committed financially and also I did not have a plan. These are the main reasons apart from many.

Simple maths :

In one year, my expenditure would be if Rs.30 per month then Rs. 360, if Rs. 60 then Rs. 720. If I plan to spend only Rs. 30 only per month then I could have saved Rs. 360, which I did not.

I am sure that most of us are like this.. The more you earn the more you want to spend just because you have it.. :-).. Can we stop this?? I think we can.. More about this tomorrow.. :)..

Financial Freedom to me is spending lavishly without bothering about income. If I have to attain my Financial Freedom then I need to work smart to become wealthy and not rich. There is considerable amount of difference between wealth and riches. (You can always google it).

This is the path that I have decided to follow in order to be wealthy. This is a slow process and I don’t believe in overnight things. Everything goes on in it own pace.
1. Increase your income.
2. Decrease your expenditure.
3. Save regularly.
4. Invest wisely.

1. Increase your Income:
This is very very tough when compared to the other three options that I have mentioned. I tried various methods to increase the income and I was successful also but it was not a regular income, it would just come every now and then. Some of the ways I tried to increase the income was, working as a freelance developer (php, c, c++). This was very effective till the work pressure from my full time job made it impossible for me to accept simple projects. I have worked in projects that fetched me somewhere between $10 to $50. I used to make in a month atleast $50 and I was happy about it. I tried various advertising programs also and made some money but not a very descent amount. I tried my hands in share trading.. This was the biggest blunder in my life till date, I burnt my fingers badly :-(. Then I realised I was not doing which I was supposed to do. I will explain in detail in later posts regarding investing and trading.

2. Decrease your Expenditure:
This is also a very tough job in hand but can be handled comparatively in a easy manner than increasing the income. I know its very tough since I myself found it very hard to decrease it but I have made up my mind to do so and I consciously keep a check on my expenditure. Why this is as important as increasing the income cause if we don’t spend much money then we start accumulating and this increases the cash and in turn this increases the wealth.

3. Save Regularly:
We generally don’t have the habit of saving. If at all we save we just save for something we plan to spend for. For example: We plan to save for buying a Television or Laptop or something that we think its useful for us. This is not a good approach at all. But still we manage to save for the thing that we love. But if we make a habit to save regularly then we will be free financially in a short span of time. I always felt that we should invest and not save due to various reasons. But now after making blunders I realized that we should save money and keep some in Emergency fund.

4. Invest Wisely:
This is one department where I am working hard to gain knowledge. I will try to enlighten you with the little knowledge that I have. But I feel if we invest wisely we can shorten the time line for our dream to reach financial freedom by half.

Do you have any better thoughts to reach Financial Freedom?? Just let me know…

Hi All,

A Warm Welcome to all of you.. I have started gathering information regarding Personal Finance and I have tried few of them. It seems working for me. I thought I would share it across with my fellow comrades so that it is helpful for them and for me as well.. Why it is helpful for me?? Good question 🙂 In this way I can read loads of articles and write up and improve my writing skills and also increase my Personal Finance knowledge.

There are so many topics that I can blog about, but why I prefer blogging about Personal Finance is, it is one of the topics which is relatively new to many of us and being Indian it is really very hard to learn about money from the family and good friends.

Our culture is such that we youngsters live with our parents and major of our financial decisions are taken by our parents for our own good and we blindly believe it and move forward with the decision. Most of us wont even dare to question our parents and we don’t even think that there might be any issues with their decision. This is all because of our culture. We are always bought up in such a environment and it wont change for quite some time. If something like that has to happen then Money related matters should be discussed during dinner. Its really nice when all the family members discuss together and make a financial decision rather than only parents making the decision and we being mute observers. I was pondering over this issue for some time now, then I realized the few things. Most of the youngsters are not interested in money matters and they are very happy if their parents take care of it. They don’t bother about it till they have to, then they don’t know what to do when they are forced to make the decisions and they start screwing up later when they were supposed to know things. Youngsters are so much scared to play with their money. They are afraid of making mistakes. This is how most of the Indian Youngsters are. Most of them don’t manage their own money. It is always someone else who is doing it for them.

Being youngsters we are provided with the opportunity to make financial decisions and if it goes wrong we can always correct them, it wont cost us dearly. We have to move forward with it and learn from them. Experience is always good even if we make a blunder as it always teaches something that is useful for us. If you are afraid of making mistakes then it just clearly means you are not trying anything new, if we try anything new we are bound to make mistakes. This should not stop us from trying new things. A good learner is a person who does not repeat the same mistake twice.

Personal Finance is Essential

There are loads of books based on Personal Finance in western countries and not in India. This clearly indicates that there is not much importance given to it in India.

Personally, I don’t find anything that is as interesting as Personal Finance blogs and books. It teaches you how to manage your hard earned money and not by giving it to others to manage the same. Money is considered to be THE EVIL THING and hence not many people try to think about it. I love the art of managing money. Why I prefer to say art is because it provides you an opportunity to be creative and imaginative. You can question how managing money can be creative? Just for example, think you are given Rs.100 and asked to increase this amount by 10% within a span of one month. How can you do it? The simplest way is to give it to someone who is in need and ask him to pay back with 10% interest. One other way would be, buy some vegetables for Rs. 100 and sell them at 10% profit. The list goes on..

Most people know how to earn money and spend money and not manage money. In this blog I would like to share few insights with which you can actually manage money. I can understand the plight of Software Engineer’s life. Most of them earn fat pay checks and spend lavishly only to realize that at the end of the day they live a life of paycheck to paycheck. This is a very disturbing situation. In almost 2 years of my experience I have lived the same way. I wanted to make a change and I am making it. I have started realizing how to go about doing it and instead of living from paycheck to paycheck I want to have financial freedom i.e. my income must be much more than my expenditure. I always believe in Increasing the Income rather than decreasing the expenditure to achieve financial independence. But I have realized that Increasing the income is not as easy as I thought. Not many have that zeal to do things and increase the income. It takes extra bit from you than what you are. You just cant assume that things will be done. It needs to be done. But instead of increasing the income, we can decrease the expenditure and then manage money to achieve financial independence.

I would like to share various posts from now on which will be very random in thoughts. Please feel free to share your thoughts. I would love to read your thoughts just to make sure that I have put across my thoughts clearly.

Warm Regards,
Saravanan