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Home > Business > Special



Losing money? Here's how to stop the leak

Kartik Jhaveri, Moneycontrol.com | July 13, 2006

One keeps wondering why one does not have enough money and then seeks ways and means to look for the best opportunity, ask for the best tips, read reports from brokers, etc. and this then culminates into buying trends, fads, hot tips.

This further culminates sometimes into small gains and many a times into huge losses. By doing this instead of moving forward two steps, many times we fall back four steps. This is the obvious fallout because trends and fads have a very short life span.

Money leakage can be broadly defined as a situation where we just do not know where our money went. Say in about 20 days from the time we get our salary credited to our account or when we had some business profit accrued into our bank account we see that we barely have 1/4th or lesser than what we actually received.

When you just don't understand how your bank balance is dwindling rapidly be sure you face a money leakage problem.

Here is another ways to understand leakage. Say a broker/agent approached you and say you actually liked the product he was offering but you had to turn him down because you looked at your bank balance and said: 'I don't have money now'. Now, you have lost this opportunity and the ensuing gains in future on such opportunities.

Remember, if you have planned well you will always have money. I am looking forward to see someone who has planned well and has no money and I am sure I will never find anyone like that. It is straightforward - if you do a job you will be paid a compensation for it. So if you don't have money it means you don't have a plan.

The question to then ask is how can I prevent this money leakage? Or how should I plan my budgets and cash outflows to plug such leakages? You don't need more income or change of job or generate trading income from derivatives. You just need a change in approach.

The solution to this problem is actually to use a contrarian approach. You cannot control expenses and commitments per se so most people would use a formula that looks like this:

Income minus expense, one minus expense two minus expense three�. so on and so forth and from what is left one want to save. People who want to take risk take irrational risks, as they want to make money fast from the little that they have and consequentially fall back four steps many times.

People who save safely will not make much anyways. In both cases wealth does not rise.

Try this formula:

Income minus savings (at least 10 per cent of income - 20 per cent is good), thereafter minus expense one minus expense two minus expense three� so on and so forth. Doing this, you will always have money.

Remember, saving is the most important outflow from your income. Everything comes after that. Now, how much to save is a factor of the goals you want to afford.

However, as a thumb rule to save 10 per cent of income is fair, 20 per cent is quite good and more than 30 per cent to 40 per cent will surely help you amass a fortune.

Let's summarise:

Money leakage cannot be controlled just because you feel like controlling it. First you save - that's fundamental. No opportunity is then missed.

You will then always have money. You don't just blindly park money in fixed deposits and Public Provident Fund. You don't ask and invest based on hot tips. You now have a leakage control action plan and nothing will then stop you from achieving many times more than what you are able to achieve now.

Kartik Jhaveri, an expert at Financial Planning, is a Certified Financial Planner and a Chartered Wealth Manager. He may be reached at kartik.jhaveri@transcend-india.com


Disclaimer:
The contents of the above articles are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.

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