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 to using them. For me, I had a 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 a month-end financial crisis many 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 a crisis every month ?"
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 the month-end crisis. So, I decided to alter my investment pattern, but due to some issues, I cannot alter it for the next 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 the bank and another is Mutual Funds. I chose '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 a few which provide 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 funds only in case of a crisis such as losing a 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 the same mutual funds. You can invest in some mutual fund but with different goals, 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 corpus to create funds, why do we use credit cards? it's true, in such case instead of credit cards I suggest you borrow money 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 :)
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