If you have read the posts in my blog dealing with the Extended money equation and the Dynamics of spending, you will be clear as to why you need to know how much you are spending and where is this money going to. Understanding this is critical to dealing with the expenditure, both in terms of knowing how much you can possibly spend and what you could cut down or control if needed.
Even though I do have a system for this through the My Money application in ICICI, I only did an actual audit last year. I wanted to understand the cash outflow as I was giving up my regular job and would therefore not have the luxury of the fairly substantial paycheck that would manifest itself in my bank account on the first day of the month. The results at first glance, I must admit, were quite shocking. My cash outflow was nearly double of what I was normally used to in a year. Also, this was all on actual cash expenses and not on any investments etc.
On second look though, the situation did not appear to be so bad. 2014 was a year when both my children went to college, we had a two week long vacation in Australia and there were other expenses linked to my son’s college admissions. If we took these expenses out then the rest of the expenditure could be easily handled by the passive income I had planned.
With this background, let me come to what happened in 2015. My expectation was that the expenses would reduce significantly as compared to 2014, but that did not really transpire. The 2015 expenditure only went down by 10 % and I still ended up spending much more than what I thought. Again it was more than double of my planned passive income. The following were the major expenditure heads:-
- Children’s education and related expense was about 44 %
- Rent paid for Hyderabad apartment was about 18 %
- Insurance related expenses came to 7.76 %
- Travel related expenses were about 7 %
Going forward, as my daughter’s education expenses are paid for, and she has got a job in Accenture the first may reduce a lot in 2016. For my son, this will continue for the next 3 years. The second head of rent is not much of an issue as it gets offset by rent that I get for my Chennai apartment.
The impact of these two should be about 40 % and it means that the passive income I have planned for should be adequate. Furthermore as I have made some arrangements, other than my passive income, for my children’s college fees, the situation looks a lot better. So much so, that we may be able to spend more on travel in 2016, something which we have planned to do.
What about investments? My MF investments are close to 5 lacs and I have 2 PPF accounts where I put 3 lacs every year. The PPF is normally from some debt instrument redemption, whereas the MF and other investments are normally from my active income linked to my consultancy services. Again as I expect my active income to be considerably more than this, I see no real issue here.
Of course, in personal finance no plan is without some caveat or the other. In this case, if my daughter does get into an IIM of her choice it will mean an extra amount of 20 lacs over the next 2 years. That will need to be dealt with but then it will be a very happy problem to have.