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 Income and Expense 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.
Expense statement
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 ?
Hi,
Some of tips from my side.
1. 6% loan is what type of loan if it is personal loan they try to finish as soon as possible.You can repay your loan with some of the saving. Because Personal loan has higher interest rate that any other loans even your saving is not capable of earn that rate of interest.
2. If you are satisfied with your first child’s school then why go to expensive school for second child. Its better to have both child in same school. Even some school offers benefits for sibling.
“Why go to expensive school for second child.”
Because he promised his wife when he was drunk! LOL :D. Now he can’t get away with that but yea can try to negotiate by telling the advantages of both kids in the same school.
It means wife is not involved in budget and financial matter. One more tips
Involve wife in financial matter and you will see the difference very soon:)
The wifey in involved. In fact her suggestion is to move both the kids to the more expensive schools.
Hi
But there should be some sound logic behind that. Is that expensive school is so good or it is just for neighbors:)
And one more point you have considered 8% monthly rental will be totally freed. If you are moving in society then there will be society maintenance charge so please add this to your expense also.
Logic ? The main reason is that there is my niece going to the same school so all the cousins will be together.
I don’t explain and argue with my wifey – remember the saying – “If you are wrong and you shut up, you are wise. If you are right and you shut up, you are married.”
@Kranti, Since when wives and logic go together? 😀
Lol Vivek !
LOL, this is the reason I stated in one of the earlier article (I think woman’s day) that without female partner’s help, only male can’t execute it well ;)…..
Though I strongly believe (LOL), sometimes they have the point and we should/have to say ‘Yes’ to it :).
@Chirag “Sometimes they do have a point” and you should say yes.
But “many times they do not have any point” and you still have to say yes. 😀
Its a car loan – financial planners better not take a personal loan !
Regarding your 2nd point, who cam explain this to the females ?
Hi,
Yea its herculean task to explain it your wife. But you have to do it for your budget. You can present same graph to her and ask her for better solution for expensive school fees.
@Kranti,
I think Radhey’s wife is also into financial planning if not a CFP. She used to write articles here in the past and they were very good.
Yes Rakesh, I do remember it and also ‘Financial News in 100 words’.
Good article. Helps to know that the same challenges are for everyone.
As for me, I’ve just started budgeting. And unfortunately, I am still trying to figure out what my goals are. I have the basic goals – home, retirement, child education but unable to understand how much to set aside for each. Currently, I’ve marked my investments into mid-term (5-7 yrs), 10yrs, long term (15 yrs). I am still trying to get in terms with the inflated amounts that are shown in most of the financial plans (Ex: Retirement corpus – 4.5 crores) and I am like “I need 4.5 CRORES ??). I know, thats the pitfall right there in my thoughts. But it takes time to get to terms with it.
I am trying to get to my asset allocation now (better late than never). And will also start keeping track of my budget.
As for the wonderful idea to save your day, cut down on drinking 😀
Just kidding.
Don’t worry Rohit, we all need a few crores for our retirement. It sounds massive amount today but not that difficult to achieve in 20-25 years of time. If you invest a decent amount [4.5 crores calculator would have told you the amount] in equity MFs and PPF you should be able to achieve it.
But beware! don’t invest and forget, keep reviewing your equity investments every year.
Great stuff Rohit, way to go. As for the tip on cutting down on drinking, I don’t really soak myself in a barrel of alcohol 🙂
@Radhey,
Excellent analysis, thanks for sharing your personal experience. I think you are doing pretty good out there, you are investing 44% of your salary, seldom you find people doing that, it would be maximum 10-20% and most of the money would by lying in savings. I liked your quote –
“Expenses rise exponentially. Income does not. And that is where everyone’s, including your truly, challenges lie.”
I am pretty good on budgeting, i save over 60% of my salary but don’t invest wisely, still working on it.
Going by your knowledge and experience you don’t seem to be a person who is not investing wisely. You know all the tricks of the trade so why do you say you are not a wise investor?
@Vivek,
I say i am not a wise-investor because i have kept a lot of money in savings and not made good use of the money.
Vow – you are a stunner – saving 60% !! how do you do it man and what % do you invest ?
I only invest about 30% of my savings, need to increase it.
I follow Warren Buffet’s ideology to live within means.
Hi,
In 21st century we are forgetting following meaningful concept of our ancestor. These concepts are backbone of financial planning.
1. Simple living high thinking
2. Live within your means
3. Never take debt
4. If you earn Rs 1 then spend 50ps in home, save 25ps and give 25ps to society.
Thanks Kranti for reminding these valuable lessons. If everyone followed it this world would be such a wonderful place to live today.
May I ask how many of these are you able to follow?
I follow 2 and 4 only to a certain extent.
Good to see a budgeting sheet of a financial planner 🙂
Personally, I don’t do such a detailed budgeting rather I hardly do any budgeting. I have fixed amount for home loan EMI, Equity MF SIPs and insurance. I have to manage everything else with the balance money.
At the beginning of the year I put lump sum money in PPF and any surplus during the month goes into adhoc debt investments or prepayment of home loan.
How much % do you save and invest Vivek ?
My investments are based on my goals, for which I need to invest about 40% of my income.
25% goes into EMI, which will soon increase to 30%.
Some 5% goes into insurance.
Rest is expenses and savings, which I never track 🙂
Maybe you should – I think there is a need to separate savings and expenses at least.
Well roughly I know my expenses are around 20% of my income, which leaves me with 5% of surplus. Sometimes with adhoc unexpected expenses it leaves me with 0 surplus but I don’t mind that as it is temporary. Overall it has been working fine for me so I never felt the need to do a detailed budgeting.
Hey Radhey good to see the new look of the blog. 🙂 Visiting after quite a long time.
Nice to see a FP’s income-expense pie chart.
Though budgeting is essential but its quite tough to place an amount for specially small heads of spends.
And the reality is definitely that “expenses rise exponentially but income does not”.
Liked this one a lot- “This figure will also increase……I become a ‘I-love-you-kids-here-is-all-my-money’ kind of dad.” 😛 And also this one- “I think I saved my skin…but that seldom happens !”
Well, indeed saving/investing 40-50% of one’s income is superb. And, school/colleges are really damn expensive now so this expense becomes unavoidable. May be sacrificing few of your personal expenses can help you to be align with your investment goals; that’s what I realise NOW how my (& most of others) father happened to keep everything aligned successfully.
Welcome back mate, we were missing you already ! I think you do not know you won some prize here – check out the monthly prize winner post !
@Radhey,
This article made me realized that i was under-investing, started new SIP’s yesterday. Thank you………..
saving more than 40% of income is very very nice.
Radhey, really great to see your income-expense-investment statements here.
First of all, readers who are not budgeting or doing this will get awareness of starting these at some extent and then making it perfect. Other who are already doing this at some level, will learn how they can improve and analyze it with more sence. So this article comes as a good learning and that is too learning from a FP’s income-expense statement :).
Thanks so much for sharing this.
I am going to do some improvement for my planning after seeing this. I am able to invest little less % of saving, as there are some strong reason’s behind it (which would cause to redeem investment at any point of time so better keeping it in liquid). 44% is a really good, though as you said challenges will start for you after home loan.
Don’t you feel Car Loan is a younger (not too younger) brother of Personal Loan, considering % (ignoring fuel charges as Car’s importance can’t be ignored at times for a family). If it doesn’t affect down payment of your home loan, you can get rid of car loan……. Mad is giving advice to Wise !!!!! LOL….. You know better what can be done :).
I am not sure of color in your expense chart, though is it true that you invest only 2% in Business….. with that if you are running so good Business, it’s a coooool and very big achievemnt. With this I also think, if you invest more % you can achieve a lot (this is not true with all business).
The statement ‘Expenses rise exponentially. Income does not.’ is simply the great and very true. Still I think this is the area one should concentrate more in whatever way possible invest in skills or things where one can increase income more than expenses….. It is very hard I know……. still everyone should keep keep keep keep working on it. It doesn’t mean hard work, it means hard work with intelligence. May be very less people would agree here, for me this point comes after stabilized investment planning is done and takes you to next step for sure.
How much of your total income are you able to save and invest Chirag?
Yes, There is always a better savings could determine your future. Also calculating these kind of things will helpful to determine our future savings. Good!
Such a great bifurcation of income and expense. We all need to track our daily income and expense.