Are you a victim of money leakage……

  The problem that most people face today is that of money leakage and the larger problem is that most people do not know anything about this problem.

We keep wondering why we do not have enough, why do we have to make financial choices, between buying a sofa v/s buying new washing machine, buying a TV v/s buying new curtains etc. We see our situation and many times we have to make decisions based on a toss. There is generally never a time that we can make our family happy and contended with our choices. There is always some new expense emerging and we have to struggle to find a way to fund it. If we are not able to do this then we tend to feel frustrated and seek ways and means to look for the best opportunity, ask for the best tips, read reports from brokers etc. to make alternative money fast, really fast if there is boom time around us. This then culminates into buying trends, fads, asking for hot tips. This further culminates sometimes into small gains and many a times into huge losses. By doing al these, instead of taking a step forward we end up taking backward steps as trends and fads obviously have a very short life span.

Money leakage can be broadly defined as a situation where we just do not know where our money goes; we are always under pressure and always worried about our meeting financial demands. Not to say that we earn less but the point is that we spend more, tend have a reasonably upmarket lifestyle and that keeps expanding. Hence no matter what salary we earn we always fall short in terms of what we desire.

Now let me elaborate a little more on this money leakage situation. Say in about 20 days from the time we get our salary credited to our account or when we had some business profit accrued into our bank account, we see that we barely have 1/4th or lesser than what we actually received. When you just don’t understand how your bank balance is dwindling rapidly, be sure you face a money leakage problem. Here is another way to understand leakage. Say a broker / agent approached you and say you actually liked the product he was offering but you had to turn him down because you looked at your bank balance and said – “I don’t have money now”. Now you have lost this opportunity and the ensuing gains in future on such opportunities. Remember if you have planned well you will always have money. I am looking forward to see someone who has planned well and has no money. I am sure I will never find anyone like that. It is straightforward – if you do a job you will be paid a compensation for it. So if you don’t have money it means you don’t have a plan.

The question to ask then is how can I prevent this money leakage? Or how should I plan my budgets & cash outflows to plug such leakages? You don’t need more income or change of job or generate trading income from derivatives. You just need a change in approach.

The solution to this problem is actually to use a contrarian approach. You cannot control expenses and commitments per se. So most people would use a formula that looks like this: Income minus Expense 1 minus Expense 2 minus Expense 3…. so on and so forth and from what is left one want to save. People who want to take risk take irrational risks as they want to make money fast from the little that they have and consequentially fall backwards. People who save safely will not make much anyways. In both cases wealth does not rise.

Try this formula:

Income minus investment (at least 10% of income – 20% is good), thereafter minus Expense 1 minus Expense 2 minus Expense 3… so on and so forth. Doing this you will always have money. Remember investment is the most important outflow from your income. Everything comes after that. How much to save is a factor of the goals you want to afford. However as a thumb rule to be able to invest 10% of income is the minimum you could do, 20% is fair, 30-40% is good and more than 50% for many years will surely help you amass a fortune.
Let’s summarise:
Money leakage cannot be controlled just because you feel like controlling it. First you invest – that’s fundamental. No opportunity is then missed. You will then always have money. You don’t just blindly park money in anything that comes up before your or that your friend recommends. You don’t ask and invest based on hot tips. You now have a leakage control action plan and nothing will then stop you from achieving many times more than what you are able to achieve now.

Mr. Kartik Jhaveri, IBS Mumbai (‘99) an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager
He may be reached at kartik.jhaveri@transcend-india.com

Disclaimer:

The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.