Financial literacy is regarded as an important requirement for the effective functioning for any economy and society. Over the years, financial literacy ensures supports social inclusion and enhances the well-being of our communities. While financial inclusion is the primary criteria while evaluating the level of development & progress of any economy, true financial independence cannot prevail in absence of literacy. In this article, we shall be taking a closer look at what financial literacy truly means and the advantages of it.

What is financial literacy?
Financial literacy refers to the ability to make informed judgments and to take effective decisions regarding the use and management of money. It thus includes the awareness, knowledge and skills to make decisions about savings, investments, borrowings and expenditure in an informed manner. In other words, financial literacy would mean that you understand the risks & rewards associated with every monetary decision and are also aware of the other options available to you.

Signs of financial illiteracy:

• Lack of awareness upon the need and importance of various financial services/ products.
• Lack of access or knowledge as to how to access to services/products
• Lack of knowledge and understanding of financial services/ products
• Inability to 'rightly' chose between alternate financial services/ products
• Inability to make proper assessment of the present & future financial situation
• Inability to understand the risks & rewards of any financial decision

Why financial literacy is needed?
The need for financial literacy is felt in developed and developing countries alike. Even if you have financial inclusion wherein you have easy and fair access to banking, investment and credit products, the real benefit can only be enjoyed if you are financially literate. There are many cases and even high chances that in absence of proper knowledge, one can be exploited by intermediaries and manufacturers, alike, leading to grave financial loses or crisis. In a world with growing financial inclusion, rise in number and complexity of financial products and a need for financial independence, financial literacy has become a must for everyone.

From a regulatory perspective, financial literacy empowers the common man and reduces the burden of providing protection and even grievance redressal to the common man by the regulators. It thus makes the entire financial system more efficient, disciplined and progressive. Financial literacy not only marks an improvement in the quality of life but also on the integrity & quality of the markets.

Who needs financial literacy?
Financial literacy is for anyone who has somthing to do with money. Thus, there is no one who doesn't need it since all of us are either engaged in earning, borrowing or spending money and do take financial decisions in our daily lives. Perhaps only infants, lunatic, godly men or old age dependents may be excluded from this group.

The focus of this article is on financial literacy that relates to you and your family members. Financial literacy is important for you, your spouse, parents and even children. Though one may argue upon the level and depth of the financial literacy knowledge required between different groups, an overall understanding is a must for all. With financial literacy, we have the following advantages

• Clarity of financial concepts and terms
• Making better financial decisions related to savings, investments, borrowings, etc.
• Accessing financial products & services easily, without fear or prejudice
• Building assets and wealth over time, leading to better financial health
• Overcoming vulnerability and avoiding exploitation by people around us
• Planning towards economic security to self and for family

Components for Financial Literacy:
The next question that arises is to what does financial literacy comprise of? You, most probably, may consider yourself as financially literate but may not be able to clearly outline the required knowledge surrounding it. We are presenting the broad outline to test oneself on financial literacy.

The following together can be considered as comprising financial literacy for any individual.

The above may seem to be a very comprehensive outline but the idea is to cover all the major aspects of money that one has to deal in their lives. While detailed knowledge may not be necessary under each heading, one should however have the broad conceptual understanding of the idea and/or knowledge of options, as the case may be.

Conclusion
Financial literacy is the primary step for financial inclusion since introspection changes behavior which in turn makes people seek and receive financial services and products. Financial literacy can lead to financial wisdom and financial independence in knowledge. It will give the ability to manage money not just deal with it and to use skills & knowledge to take wise decisions for the future.

We advise all our readers to ensure that they are 'financially literate' in the truest spirit. We also encourage all the readers to make their family members, especially spouses, parents and growing children financially literate. One may use the outline shared to impart such knowledge. Indeed it would be a great learning for anyone that would otherwise take great time & experience to gain. This would help increase the economic space, self esteem and the confidence level of any individual and make him/her ready to easily engage in the mainstream of the financial systems.

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Today we'll not talk about financial products or investments or goals, rather we'll concentrate on simple routine money habits which you can apply in your daily life and become financially prudent, i.e. spend less and earn more.

So, here are ten money habits that you can adopt in your everyday life:

1. Don't carry excessive cash in your wallet: Make it a rule, keep minimal cash with you. Cash generally isn't faithful to the owner. You must have experienced that once you pay for a purchase with a 2,000 rupee note, the change will vanish in no time, plus there are chances of cash being stolen or lost. So keep limited cash, you can always use a card or an e-wallet in case you fall short of money.

2. Be Vigilant with money: You must be careful with money in routine activities like you must always be aware of how much cash you have in your wallet as well as in your cupboard, otherwise you will never come to know if you have dropped or someone has slipped a few notes away. Write down if someone has borrowed money from you or vice versa if you owe someone, if you tend to forget such transactions. Regularly check your bank statements, check the sms' you get from your banks, so that any wrongful debits can be detected.

3. No to impulsive shopping: Put a strict no no to hasty shopping decisions, because in such cases you end up buying stuff you don't need or already have, and only waste your money. You should always make a buying list, after a careful consideration of your requirements, and strictly adhere to that list.

4. Don't go overboard in frugality: Don't go all the way to the wholesale market for buying 1 kg of dal, and waste your time and fuel, because it's 10 rupees cheaper. Although we must cut costs to save money, yet you must factor in the time and energy that goes into saving those bucks, the efforts gone must be worth the saving.

5. Pay your bills in time: Many of us are chronically late in paying our bills. We often end up paying late payment fee and penalties on our mobile bills, electricity, water bills, etc., not for lack of money, but for our lethargy. These penalties if avoided could have saved you thousands of rupees over the years. Make it a rule to always make your payments in time, you can use mobile apps to remind you of the bill dates or you can use automatic bill payments system.

6. Manage your credit cards: If you are using a credit card, you must be extremely careful in always making bill payments in full and in time, because:

> Late payment of bills attract heavy penalties

> If you just make the minimum payment, then though you don't have to pay the penalty, but you have to pay interest, and the interest rate in most credit cards is above 30% p.a.

> Thirdly, defaulting in credit card payments affects your CIBIL score.

7. Be a smart shopper: You can save a lot while spending. The first thing to do is compare the prices on different websites, or stores, at times there is a significant difference in the price of the same product at different places. Look for coupons, you can get discounts on various products and services, also remember to use your coupons before the expiry date. If there isn't an urgent need, wait for the sale, why spend more when you can get the same thing at a cheaper price, next month.

8. Budget: If you wish to achieve the ultimate objective: spending less than you earn, then you must create a budget and follow it religiously. Keep a track of your expenses, and try to keep them within the limit you have set for yourself. It is ideal to note down your expenses, it'll be easier to track them.

9. Crosscheck the bills: Make it a habit to always crosscheck your bills, like food bills at restaurants to ensure you are not paying for the dish ordered by people sitting at the next table. Similarly check your grocery bills, mobile, electricity bills etc., since there can be discrepancies.

10. Eat at home: The frequency of dining out has increased for most of us over the years. Eating out especially at fancy restaurants is an expensive affair, it occupies a significant piece of our total expenses, particularly in metro cities. We pay thousands of rupees for one dinner, if you calculate your restaurant expenses for an entire year, it'll be a significant sum. If you increase the frequency of eating home cooked food, it'll be good for your health as well as for your pocket.

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For many of us, the topic of ‘managing’ our finances only hits us when we find our expenses regularly surpassing our income. That is, we start to have problems in shelling out our monthly credit card bills, or if no credit cards, you may be just finding yourself in need of one in the last few days of the month. Situations like these quickly brings us back to the ground and remind us of all those advices we received from parents about discipline and saving.

The stories of people who toiled long and hard to save money to pursue their one dream, no longer motivates us to save or develop monetary discipline, we want to enjoy our present to the fullest. In doing so if we encounter a problem, we are bound to use the quick fix – ‘a drastic cut to the expenses next month or till the finances actually come in shape again, or may be a small loan a credit card application etc.’

Problem with quick fixes is that, they very successfully delude us into thinking that it’ll will always be handy, making us even more delinquent for the future. Moreover, as the prowess of the marketer grows not just the new purchasers but even some of the most disciplined and experienced one find themselves slipping once or twice on unplanned purchases.

Well, we cannot ask the marketers to go easy on us with their marketing skills. Then what should we do to make sure our financial harmony remains intact for a long time to come, and our focus remains towards the two things that brought us all the happiness – profession and family?

It is the answer to this question, that we shall explore in this article today. There are always three steps to resolve a situation:

1. First, understand what caused it.

1. Second, make a clear picture of how we want it to be.

1. Third, chalk out a plan detailing how it’ll be done.

Attending to the first step you only find two culprits:

• Income &
• Expenses

Given the rigidity on the income part, it is always easier to manage expenses than increase income. There are many possibilities on how does one gets his/her expenses out of proportions:

• Unplanned purchases/expenses
• Marriage
• Medical Emergency
• Other unforeseen financial requirement

A closer look will reveal the nature of these outlays. ‘Except unplanned expenses or purchases for that matter, all the other outlays are particularly non-recurring and of rare nature.’ Also, not only the unplanned regular expenses are frequent but form a major part of our entire life story. Getting hold of this one head, while you keep an strategic eye on the others, should solve a major chunk of your personal finance issues.

So, how do you really get hold of your personal finances? Well, I believe you already know, ‘budgeting, planning, being disciplined and blah blah...’ Yeah, you have heard all of that alright. You must be thinking right now, ‘you think I have not tried already, but when it comes to the decision of spending the need to buy is more urgent than any other thought. Its just spontaneous.’

You are absolutely correct, much of our purchasing decision is spontaneous. We certainly do not lack is the power of decision making, but the right motivation to be disciplined or the right motivation to postpone a expenditure. Budgeting is one of the tools you may use, but not the only one. Discussed below are three easy steps you can take to not just get hold of your personal money matters, but even make your financial lives more enjoyable and do away with the drought seasons on your lifestyle spend.

KNOW YOUR EXPENSES
The first step is something straight out of some holly wood action movie, or a crime thriller, where the villain stays at large till the end of the movie. It’s called ‘Thinking Ahead’, which is what your favourite hero does to nag the villain ultimately. When it comes to your financial matters, expenses are the real villain biting into your purse every other day. Therefore, first mission objective is to get hold of them before they get hold of us.

For ease of clarity we shall do it in three parts:

Part 1 of Beating Your Expenses ‘Thinking Ahead’
We all have certain expenses common among everyone, they are the basic living expenses, even if you have never noted them down somewhere, if you just sit down and put your head to it, they are easy to spot. Most come in the form of:

• Weekly grocery purchases,
• Kitchen expenses,
• Transporation, fuel expenses
• Last week’s movie tickets
• That dinner at your favourite restaurant last week etc.

Well the list can strech, and pretty soon you will be exclaiming in disbilief at some of the ridiculous heads you probably never thought of spending. But pretty soon you have the list of, if not all at least 90% of them in your hand, and whats more, you can put a number in the amount field as well.

Still, kindly check your excitement level. Well, yes your finances are coming back in place but hold on, we just took that most important first baby step into it. This is just the beginning, for now, we have just put down the regular weekly spends, and trust me the hard part is almost over.

Available Deductions
First of all let us look at the available limits of deductions that can be claimed from gross total income for the current assessment year. With the increase of deductions limits for Assessment Year 2015-16 following deductions are applicable for individual taxpayers:

Deductions from Gross Total Income:
Following deductions can be claimed against the Gross taxable income for the Assessment Year 2019-20:

Part 2 of Beating Your Expenses ‘Thinking Ahead’
Really, previous part is the scariest of them all, and this part however should be easy, because there are always documentary evidence of it. This part accounts for your monthly expenses, those big outlays, which are almost fixed; like:

• Electricity & water bills
• Telephone / Mobile bills
• Television / DTH bills
• House Rent
• Any Loan EMI payment
• Parlour & medical bills
• School fees etc.

These expenses, even if small are mostly documented, therefore easier to provide a number to and track, and not to forget predict. You may not want to miss on many of them – you don’t want your water & electricity bills piling up, you don’t want your mobile operator putting late payment charges on you, you don't even want to miss on those loan EMIs. That means, these expenses must be treated as important, unavoidable and fixed expenses. They can certainly be reduced by efficient and careful use of resources but still they will be there and to an extent they are necessary.

Part 3 of Beating your Expenses ‘Thinking Ahead’
Yes, you guessed it right, the annual expenses. These are most neglected until the deadline is close and situation becomes like do or die. Some of these are even statutory expenses and many times we simply tried to find a quick solution to it, only to realise later how bad that decision was. Let’s have a look at these kind of expenses in the first place:

• Annual Savings for Tax exemptions:
  • Insurance Premiums
  • Tax saving investments etc.
• The annual vacation expense
• Birthday party / Anniversary expenses
• Subscription fees to your favorite club etc.

Problem that these expenses can create is definitely huge, because these expenses can mean a huge outlay on your income, at the end of the financial year, in the middle of the year or whenever they occur. You may ask, how come a tax saving investment an expense? Well, because you cannot redeem it for a few years to keep your exemption intact, and much of it is done as a necessity.

Because of larger budget size of these expenses it is always recommended that you plan in advance for them, and not just about the party but also about the money that will run the party.

Most of the time it is up to us to put a figure to it in this case, except for the tax saving investment thing. But all others, like vacation, parties and subscriptions are defined by us and so the amount of spend is in our hands.

Once, you have completed the three parts of ‘Thinking ahead’ of your expenses, you have pretty much clear idea how your next year will be financially. Why a year? Because, that’s the time figure your income is assessed for, that’s the time figure you assess your income growth and more than that didn’t we make a new year resolution for a year?

BUDGETING
Great, so whats next now that we have overtaken our expenses on the time track? Now, we put the bumps in their path. Here’s how...

Many of you may argue, that what we just did was not budgeting? No, sir/ma’am, with due respect it was not, at least not yet. Why not? Let us see what difference budgeting makes.

We have noted almost all our expenses in the previous step, but they simply tell us one side of the story. So what’s the other side?

The income part. Expenses alone don’t show what lack of discipline did to your financial situation, actually matching them with income does, and that’s what budgeting is all about. So at the beginning of the budgeting exercise we just put all the income heads together and estimate the previous year’s total inflow in our bank accounts.

A good budget sheet would look something like this:

So in a way, budget is not only a prediction of all hte expenses over time, but also a prediction of income that will provide for those expenses and also savings. You may ask, how are we supposed to include savings when we are not even able to provide for expenses? Well, that’s where the real utility of budget kicks in.

Once you have included the following six parts in the budget, even if some of them do not have any amount in them:

1. Bank Balances
2. Cash in hand
3. Income at current level
4. Savings (even if zero)
5. Anticipated and fixed Expenses
6. Leftover

The next step is to provide some targets to your savings, start small, but start. In any case if your income is taxable according to the current slabs you must incur some expenses to ward of as much tax as possible. You will have to manage them from somewhere.

Then the next step would be to manage the expenses, remember that while in some months you came over bored with excess expenses your quick fix allowed you to provide for a large part of it in the next. But the problem with quick fix is like starving for a day and once the day is over, you go for the unhealthiest but tasty cuisine which ultimately makes you fatter than before.

Managing Expenses

Give your list of expenses three simple ratings:

1. For most important, unavoidable, necessary expenses, for example:
   • House Rent
   • EMIs
   • Electricity
   • Water etc.
2. For important but manageable expenses, for example:
   • Furniture purchase
   • Clothing
   • Fuel / Vehicle
   • Vacation etc.
3. For completely manageable expenses, for example:
   • Entertainment
   • Eating out
   • Birthday parties
   • Gifts etc.

That will allow you to focus on the expenses which are manageable and leave those fixed in nature alone, at least for now. Then you start to put the limits on each of the manageable ones, you are actually setting up targets for yourself.

A piece of advice though, don’t leave your spouse out of this, it’ll be fun activity that you can do along with your spouse, and have their say in the budget, it woudn’t be a surprise if you are amazed at some of their ideas.

It is likely that at the end of the day you will be able to add more amount to your savings than you imagined before. Just one caution though, do not squeeze the completely manageable expenses into oblivion, they are important recreational activities and a complete lack of them will be stressful causing a sudden surge sometime later.

So you managed to add up some savings in your budget, and now you are ready to implement, before you do, here’s a quick recap:

1. List down all expenses (For the Week, Month and then Whole Year)
2. Give an amount to all the heads (For a year)
3. Take Note of your current bank balances
4. Make a conservative estimate of income for the next one year
5. Give ratings to your various expense heads
6. Adjust those rated ‘C’ first and add the amount into ‘Savings’

Now the last step will be to implement and that should be simple. All you have to do is:

1. Divide your annual budget calculation into a month’s expenses (divide by 12)
2. Setup weekly targets for week related expenses (simply divide the monthly allocation by 4)
3. Review your weekly performance at the end of the week (Make adjustments for next week)
4. After the whole month you may sit down and review your monthly budget performance and again make necessary adjustments
5. Same goes for a whole year
6. Also recommended is that you get a ‘Family Floater Health Plan’ to provide medical cover to your family.

Remember that, because we only accounted for 90% of the expenses 10% will always be out there to disrupt the budget progress, but you must not worry as the flexibility of budget allows you to enjoy all those events without giving up your targets.
Similar to the expenses we made a conservative estimate of income as well, therefore any additional income by way of cash gifts, capital gains or bonuses must be used as follows:

1. Divide it in two parts if the amount is large
2. Save the first part as bonus savings
3. Send the other one to your savings account to fullfil some of your pending wishes

That way, you will not regret not enjoying your money, neither you will regret enjoying it. With this, we conclude our annual money management. Shall we call it over? Perhaps not. In the next to put your long life and money matters throughout in order, we move one to the next step.

INVOLVE PROFESSIONALS

Our life goals do not end in one year, we will have some major goals ahead of us, once in a few years, we will need to upgrade our vehicle, get a major repair done to the house, or may just encounter a sudden electronic appliance need, or what about that international vacation we planned about.

Making an annual budget was one thing, and it resolved one of the major hurdles of initiating/increasing your savings. But only saved money doesnot automatically grows and comes handy for major life goals. The greatest threat savings have comes from their use over time. A small omission in budget may cause a large expense to be overlooked and hit us when we have no option but to dig into our savings, that is when most of your future aspiration will take a financial hit.

To avoid such situations and sail through the ocean of life, which at times can be turbulent, you require strategic planning spanning for your life. Which should account for:

• Your current lifestyle along with
• Your long term aspirations &
• Prepare your money (Savings) to meet your future needs

This is where professionals like wealth managers and financial planners come into the picture. They will assist you in achieving answers to the following essential questions:

1. Whether you are saving enough for your family’s future? &
2. Whether your savings are working towards your family’s future?

The professional Wealth Manager/Financial Planner, will assist you with the following:

• Improve savings over time
• Prepare well in advance for important life goals, i.e.:
  • Kids’ education
  • Kids’ marriage
  • First House Purchase
  • Own retirement etc.
• Allocate your savings according to your goals and risk tolerance. So you are always at peace that your money will be available whenever you need it to be.
• Prepare you for emergencies, like:
  • Job Loss
  • Medical emergency etc.
• Allocate your additional income, bonuses etc.
• Review your plan time to time to check on progress and make adjustments
• And finally, to plan taxes and estate properly so that they pass in to the right hands after you.

A comprehensive and professional wealth plan provides you with a larger picture of your future vis a vis money, and this knowledge itself is really important. It prepares you to make necessary adjustments and provides you the necessary motivation we talked about in the beginning for such adjustments which are ultimately going to pay off over time.

The key to a better future, as most successful self-help professionals put it, is in “starting now” so that at least two – three years down the line your are there, where you wish you have been right now.

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