Hello Sir,
Wish you and your loved ones a very Happy Diwali.
We love educating our members and readers about financial discipline so that they are able to manage their money much better.
Let me share with you a simple personal finance concept that might help you create that template.
4 funds to manage your earnings better:
- Regular expense fund
- Investment fund
- Emergency fund
- Big ticket purchase fund
Remember, the figures mentioned above are not sacrosanct and can change depending on one’s income or financial situation; however, we do believe that one should try and save at least 20% of his/her monthly earnings.
Daily Expense Fund – As the name suggests, this fund is to be used for meeting regular expenses like fooding, lodging, medicines, conveyance, etc. You can park this money in a savings account and use it for your day-to-day expenses.
Investment Fund – Ideally you should put at least 20% of your income in this fund. This is your financial freedom fund. The fund that you have to grow as much as possible so that the passive income from this fund someday exceeds your lifestyle expenses.
Park this money in various growth instruments of your choice like Stocks, Mutual Funds, Debt Funds, Gold, Land, etc. Also, have a longer-term horizon of 5-10-20 years for investment fund.
Emergency Fund – You should put 10-15% of your income in this fund and keep adding until it has 6-12 months’ worth of your lifestyle expenses at least. After that you can put this 10-15% also in the Investment fund.
Park the money in this fund in a Fixed deposit or a Liquid Fund so that it is instantly available. As the name suggests, emergency funds are for emergencies and such scenarios usually demand instant access to funds.
Big Ticket Purchase Fund – You should avoid adding more than 15% of your income to this fund.
Most people spend so much on impulse purchases that they never have enough for bigger purchases like home renovations, car, foreign vacation, etc. This fund aims to solve that problem. You can park this money in a recurring deposit or stocks/mutual funds depending on the time period and the goal for which you are saving. Stocks/Mutual funds or volatile instruments should be avoided if the goal is to be achieved within 6-12 months.
The idea behind this template is to help you divide your expenses and investments in such a way that you can plan them better and make sure they are all in sync. You can tweak the template and figure out whatever works best for you.
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Best Regards,
Archit Mehrotra