Tips for NRIs to optimise their spending and maximise savings

Many non-resident Indians (NRIs) have been toiling hard to rake in that extra bit but are unable to fathom where all their money disappears by the end of the month. In most cases, there is a money leak happening somewhere. This leakage needs to be fixed right away before your expenses balloon to unimaginable proportions leading you into a debt trap.

A well-planned financial budget can help you set your finances in order. This will help you to allocate your income according to your needs and desires. Here are some of the important points that NRIs need to keep in mind so as to better manage their finances.

Ascertain your total income
Jot down all your sources of income, which includes that of your spouse too if both are working. Apart from your regular employment, your part-time jobs, dividends, interest income from investments are all sources of income. Total them all.

Save at least 20% to 30% of your gross income
Leave this money untouched. Depending on your age, goals and risk profile invest this amount in mutual funds, equities, fixed income, bullion, real estate and other asset classes.

You have to also check whether you have a good support system in place for yourself and your family. For example, if you are living in a place like Australia where children’s education, retirement and health expenses are supported by the government, there is not much to worry about. If you are covered under a social security system, then you may reduce your saving ratios by about 5%.

Buy property at the earliest
Buy a home at the earliest, irrespective of which country you reside in outside India. Many NRIs make the mistake of not buying a home in the foreign country they stay in and continue to live in rented apartments for long periods. You must consider buying a home at the earliest as most properties continue to get more expensive over time.

Also, for those who are planning to buy a property back home in India on their return should make the purchase much earlier. The property values in most cities in India move up considerably over a period of 5-10 years. After a decade, a property in the NRI’s home state may become unaffordable.

Are you spending on a need or a want?
Paying up your monthly rent, electricity and grocery bills are all needs you cannot wish away. But you can surely cut down on your several outings at expensive restaurants and shopping sprees that burn a deep hole in your pocket.

With several malls around, convenience is in, no doubt. But think. Are you buying goods that you really need or are you following the herd? Have you used that food processor you bought last Christmas or is it still lying in a sealed pack in the corner of your kitchen? Analyse your past purchases and you will know your spending habits.

Put off impulse purchases
Do you go berserk when you hear of heavy discount offers, free gifts and cashback schemes? Stop! Simply put off impulse buying. That “buy one, get one free” offer may not be as good as it seems. Besides, give a thought - do you really need that shirt now or do you want it because it simply appears to be a good offer?

Follow the 60:30:10 ratio
Try maintaining a ratio of 60:30:10 between your needs, wants and desires. Maintain a list of each of your expenses, howsoever, insignificant they may seem. And you will know how much you have ended up spending on items you don’t really need. Segregate the fixed and variable expenditure. While there’s not much you can do with the former, you can easily fine-tune your variable expenditure.

Contingency fund is a must
Financial emergencies such as loss of employment, illness in the family and accidents can spring up unpleasant surprises just anytime. You need a contingency fund that can take care of sudden financial needs. Keep aside three to six months of your income for emergencies. And you won’t have to dip into your savings in case of a financial crisis.

Stick to your budget, review regularly
Creating a budget is easy but it is hard to stick to it. Ascertain each time how close you have been to your laid-out plan. Make necessary changes wherever needed, fine-tune and stick to your budget always, come what may. Do a review to find out to what extent you are on track and whether there is a diversion at all. If yes, make up for the same in the next month and soon you will be on the right track to achieving your goals

Source: times of money..