This post is about personal finance and mostly suitable for people who live in India. Many of us (including me in the past) are using credit cards. There are pros and cons of using them. For me, I had bad experience using them. The reasons are
- Spends too much unnecessarily
- Pays minimum due thereby interest goes high
Hence, I decided to close them. But, later I faced month-end financial crisis many a times. So, every month I had to ask a friend or approach apps like Walnut to get out of the crisis. Months passed by, but still I did not solve this problem. One day I contemplated and felt “what’s the point of earning when you’re facing crisis every month ?”
So, I opened my finance tracker apps ( I use Waltnut and MoneyView to track my expenses ). I figured out this
Investments + Insurance + Loan = 64 %
Living Expenses = 32 %
Other Expenses = 4 %
As you see from above , I am saving too much LOL ! I don’t have any buffer which may save me from month-end crisis. So, I decided to alter my investment pattern, but due to some issues I cannot alter it for next one year. Hence, I decided to create an “Emergency Fund”. So, I explored different options to keep this money. One key characteristic I need is I should be able to withdraw this money immediately. So, I got only two options. One is bank and another is Mutual Funds. I chosen ‘Liquid Mutual Funds’ because the interest rate is higher than bank and the taxation is less. There are many liquid funds out of which I found only few which provides instant redemption. I picked Nippon India Liquid Fund Direct - Growth and Aditya Birla Sun Life Liquid Fund Direct - Growth . Here’s the list of such funds : https://www.paytmmoney.com/mutual-funds/insta-redemption-funds
After that, I took some money from my investments ( one month of my salary ) and added it to my emergency fund. Ideally we should use emergency fund only in case of crisis such as losing job, medical issues etc. But, in my case I had to use it for my month-end crisis.
Now, coming to the main problem, how can we replace credit cards with liquid mutual funds ? simple, create another fund named ‘Credit Cards’ with same mutual funds. You can invest in same mutual fund but with different goal, I use goalwise for it. If you are in need of some money, withdraw from the fund and then don’t forget to put it back. The advantage of this method is you have the flexibility to repay and you don’t need to worry about payment due deadlines and late payment penalties. But, for this you need strict financial discipline.
But, you may ask if we have that much of corpus to create fund, why do we use credit cards ? it’s true, in such case instead of credit cards I suggest you to borrow mone from Walnut Prime , ETMoney LoanPass or MoneyTap.
So, the conclusion is we should have an ‘Emergency Fund’ which is equal to 6 months of your living expenses. And we should not plan our budget too tight. So, I want to change my budget like below
Investments + Insurance + Loan = 45 %
Living Expenses = 35 %
Buffer for other expenses = 20 %
Hope this article helped you :)