Being a financial planner, I am shit scared about not meeting my goals. I preach goal based investing and sane financial planning, so there is no way I can falter with my financial disposition.
So when I look at my personal income and expense statement each 6 months, I get the creeps. I know I am falling short and need to make up. I just finished analyzing my FY 2011-2012 statements and wanted to share with my readers the fact that financial planners have the same challenges as ordinary investors do !.
My financial statement
I always start with budgeting before a financial year. I spend a great deal of time putting money practically against all heads of spends. I do this very meticulously because budgeting can make or break your financial investing. You should not do this for the sake of doing it.
It’s like preparing for a vacation – you plan the trip and search for Google maps for directions and fuel and food stops. You don’t want to go in the wrong direction, do you ? The same applies for financial planning.
Budgeting can be achieved in a simple excel sheet and you can use personal budgeting sheets for the same.
In the last 4 years when I have been doing budgeting, I have always met my target of investments per year simply because I was able to break down the spends into heads and hence calculate the surplus available to invest each month. If you do not do this each month, you cannot achieve the yearly investment target.
The lesson learnt here is simple – If you are not doing budgeting, you are not planning to spend your money wisely. Without that planning, you will spend in an ad hoc manner and invest less money for your future financial goals.
After budgeting is done, I generally review my personal income and expense statement twice a year. Since I use Perfios online for all my income and expense inputs, the reports generated are automated and easy to use.
Based on the reports I analyzed, my expense statement for FY 2011-2012 looks like the below.
And so the fun begins.
My target is always to invest a minimum 40% of my net take home. Anything less than that, I fret ! So I was pleased to see my investments at 44%.
The biggest expense black-hole is all the daily living expenses which I have labelled as ‘Home’ at 18%. This includes groceries, dining out and other lifestyle expenses like entertainment, movies and shopping among others. I am certain this figure will increase.
You see that ‘Events’ out there at 5% – these are planned birthdays and vacations and unplanned one off big ticket expenses which caught me unawares. This figure will also increase as my kids become more and more demanding and I become a ‘I-love-you-kids-here-is-all-my-money’ kind of dad.
My loans are at 6% now but this is going to increase dramatically from this year with a home loan I am taking on. The education will more than double as my second child will go to a more expensive school, something which I never planned for but agreed with my wife when, as far back as I recall, I was drunk to the core.
You must note that I do not have a magic wand to save a higher percentage of my salary – I am able to do that simply because my liabilities are very very less. When the loans rise, like other normal investors, I will end up saving less !
So here is my worry – if the above heads are going to increase big time, it will impact my ability to save and invest money. And before you jump to a solution that my income will rise as well and that the 8% rental will get freed up once I move into my house – let me state that my income increased by 8% last year. I think I saved my skin because my outflow per annum remained the same – but that seldom happens !
Expenses rise exponentially. Income does not. And that is where everyone’s, including your truly, challenges lie.
Next year, I know I am going to look a bit sorry.
Do you friends have wonderful ideas that can save the day for me ?
Do you do budgeting ? How much % are you able to save ?