Surprises are not always fun. An unexpected expense, especially a big one, can lay rest to the best of your budgeting efforts.
Someone in your family fell sick and you had to pay for the medical expenses, or your sibling wanted emergency cash for a college trip. The financial consequences in either case might not be good.
While your salary is unlikely to double overnight, here is a plan you can use to make your salary last longer for the duration of the crisis.
#1. Classify and prioritize your expenses
The first thing you need to look at is your expenses list. Take a notepad and put three headings
- Necessity – Must Pay (Include EMIs, utility bills, rent, children’s school fees, etc.). These are non-negotiable expenses.
- Personal Expenses (Controllable) – Food, transportation, mobile and internet plans, and so on. These can be reduced. For example, just for the duration of the crisis period, you can choose to eat out fewer times.
- Personal Expenses (Can be deferred or avoided) – Clothing, new gadgets, weekend outing, movies, etc. You should push these back.
List down your prospective expenses for the month under these heads.
#2. If your employer provides low interest loans to employees, use the facility.
Some employers provide low cost credit to employees. If yours does, go for it. This can be a good source of short term cash.
#3. Use the payment period on your credit card.
A useful hack is to use your credit card for unavoidable purchases and use the payment period window to tide over the crisis period. You might also get good discounts at certain stores. However, limit usage by family members for non-essential items.
Make sure, however, to always pay your credit card dues before the payment window expires. The interest charges on unpaid dues will make matters much worse.
#4. Use your short term liquid funds or money in savings accounts to avoid paying avoidable taxes
When using your financial reserves, first use any liquid mutual funds or savings accounts you have. This will help you avoid unnecessary capital gains tax which might otherwise be incurred.
#5. Pay only for what you use on your bills, limit additional usage or added services
Check your postpaid bills for your mobile and internet connections and for the duration of the crisis period, limit usage to get a smaller bill. Ask your family members to limit usage as well, especially on shared plans.
#6. Switch to cash for the duration of the crisis period
Using cash for your day to day expenses helps you to curb unnecessary spending, as you can carry only a limited amount of cash. A useful way would be to hold only a budgeted amount in wallet for the day.
If you get Sodexo coupons as part of your salary, now would be a good time to use them.
Finally, it pays to be prepared
Having adequate savings or an emergency fund goes a long way towards protecting you from the pain of a crisis period.
A good way to create a fund for a crisis period is to invest regularly in a liquid Mutual Fund which gives you good returns as well as the ability to withdraw your money quickly. You can use online investing platforms like Scripbox to automate the creation of your “crisis” fund.