{"id":6007,"date":"2022-02-19T18:00:02","date_gmt":"2022-02-19T12:30:02","guid":{"rendered":"https:\/\/aayushbhaskar.com\/?p=6007"},"modified":"2022-04-15T00:56:39","modified_gmt":"2022-04-14T19:26:39","slug":"ayf","status":"publish","type":"post","link":"https:\/\/aayushbhaskar.com\/ayf\/","title":{"rendered":"Automating Your Finances in India – Part 1","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"
Tech is the key to scaling, virtually anything.<\/p>\n
One of the key ways tech allows scaling is through automation. We are living in an era, where we can utilize modern apps and put our savings and investments on autopilot so they keep growing with or without our attention.<\/p>\n
I have been automating major aspects of my business and life for quite a long time.<\/p>\n
Ever since I started making money, I\u2019ve been finding different ways to optimize and automate my investments, savings, and expenses. Even budgeting.<\/p>\n
The benefits of automating your finances are many, but it all comes down two three things:<\/p>\n
In this article, I\u2019m going to walk you through a simple step-by-step automation strategy to automate your savings and investment routines.<\/p>\n
I\u2019ve kept this guide super simple<\/strong>. Even if you have zero knowledge, less than an hour of discretionary every week, you can implement this whole automation and get your finances right.<\/p>\n I can virtually guarantee you will be able to save and invest more than you did before by following this strategy.<\/p>\n Before automation,<\/p>\n We are going to fix the fundamentals first.<\/strong><\/p>\n <\/p>\n There are a lot of gimmicky bank accounts offered by private banks in India.<\/p>\n I\u2019m talking about the likes of HDFC Classic Or Kotak Privy League.<\/p>\n These bank accounts require you to maintain a high minimum-average balance, either monthly or quarterly. Which is absolute nonsense when you can get \u201cbetter\u201d without leaving a pile of cash.<\/p>\n Apart from ICICI Privilege, I wouldn’t recommend opting for any high-net-worth bank account in India.<\/p>\n Especially HDFC classic.<\/p>\n If you are still obligated to keep any more than 25,000 in your bank account, you need a change.<\/p>\n Because I don\u2019t want you to feel scared spending your own money or paying hefty fees if you choose to spend it.<\/p>\n So, in this first step, we will choose a low-cost bank account, but not zero-balance. Often, zero-balance accounts come with hidden fees, so make sure you’re not opting for Kotak 811.<\/p>\n I recommend opting for:<\/p>\n The three bank accounts above – won’t charge you for each IMPS transaction, forex transactions, ATM maintenance feel, and other hidden charges such as fees for your card getting denied at an ATM. With ICICI Bank, your relationship with your bank over time will help you get special loan rates as well.<\/p>\n Kotak Mahindra Bank is also a great choice, but they levy certain charges that don’t make any sense. And they keep adding new ways to charge customers.<\/p>\n If you\u2019re using a PSU bank, such as PNB or BOI as your main bank account, switch to a better bank like ICICI, IndusInd, or even Kotak.<\/strong><\/p>\n You’re actually giving away your money to NPA borrowers for free.<\/p>\n PSU banks have outdated apps (apart from SBI), very bad customer service, and no benefits of being a good customer (again, apart from SBI).<\/p>\n There are absolutely zero reasons<\/strong> to opt for high monthly average balance bank accounts.<\/p>\n Once you\u2019ve fixed your bank account, let’s move on to the first step of automation – creating an emergency fund.<\/strong><\/p>\n <\/p>\n A situation like the COVID pandemic is a great example to explain the concept and importance of an Emergency Fund.<\/p>\n Let\u2019s say you are a salaried employee and when the lockdown due to the pandemic in 2020 happens, you lose your job.<\/p>\n When you don\u2019t have an emergency fund, and you lose your job, you are f\u2019ed.<\/strong> That\u2019s how I\u2019d put it.<\/p>\n However, if you have an emergency fund, you can swiftly keep up with the utility bills, pay rent, and pay for other important stuff – while looking for other ways to start making money.<\/p>\n And it\u2019s important to understand, your investments in this scenario are not considered your emergency fund. They are affected by the market. Some of your stocks are down more than 60% and your mutual fund might not allow withdrawals due to high sell-off numbers.<\/p>\n Plus, when you take long-term investment bets, you don\u2019t want to make money out of these assets in the short term. You\u2019d end up taking losses and paying taxes<\/a> on top of it.<\/p>\n That\u2019s just one simple example of why an emergency fund is essential. You can think of a hundred different scenarios where you need money, right now and if you don\u2019t, things might get ugly.<\/p>\n An emergency fund, by definition, is a sum of money you keep aside where you can access it in an instant. You should take money out of your emergency fund only when you really need<\/strong> to, and never for anything else.<\/p>\n You don\u2019t start investing until you have an emergency fund.<\/p>\n That’s it.<\/p>\n Ideally, you would read recommendations for liquid mutual funds as a safe place to park your emergency funds.<\/p>\n One of the reasons I wouldn’t recommend choosing Debt Funds as an emergency fund, it\u2019s they aren\u2019t as safe as your bank, though they are very well protected against volatility and market shifts.<\/p>\n And the whole idea of having an emergency fund is getting guaranteed access to the funds when you need it. Not in a day, or 48 hours, right now.<\/strong><\/p>\n That\u2019s why we are going to keep our emergency funds in a savings account.<\/p>\n You can automate the transfer of funds to grow your emergency fund. You get the security of a bank. You earn interest on top of it, plus, it\u2019s easily accessible without any charges. There are no exit loads, gains tax, or 48-hour waiting periods to access your funds.<\/p>\n The most important part – you need discipline<\/strong>. You have to make sure you don\u2019t touch your emergency fund unless you absolutely have to.<\/p>\n Keeping your emergency fund in a savings account also makes it easily accessible. So easy that someone with no principles and strong values will constantly withdraw from their emergency fund.<\/p>\n You should not do that.<\/strong><\/p>\n There is a way to calculate how much money you should have in your emergency funds.<\/p>\n Here’s an online emergency fund calculator I’ve got\u00a0built for you.<\/a><\/em><\/p>\n <\/p>\n To calculate it, first analyze how much is your monthly expenditure. An approximation would work. You don\u2019t have to be specific.<\/p>\n Let\u2019s take \u20b9 100,000.<\/p>\n If my monthly expenses are \u20b9 100,000, ideally I should have enough money in my emergency fund to cover up to 6 months of expenses.<\/p>\n I need at least \u20b9 6,00,000 in a separate savings account as my emergency fund.<\/p>\n I\u2019m more conservative, so I’d probably like to have at least \u20b9 1,200,000 in my savings account. Just to be on the safe side and besides, I love to have cash in hand.<\/p>\n This love of cash was one of the main reasons I was able to capitalize on the March 2020 crash – getting deals like \u20b9690 on average for Infosys. If I didn\u2019t have cash, it would be a once-in-a-decade opportunity that I had missed.<\/p>\n So, even if you hear Ray Dalio<\/a> saying cash is trash, remember he gets a big pool of cash every quarter to invest. He\u2019s cash-rich. And you should be too.<\/p>\n I recommend choosing a savings account in a bank like:<\/p>\n If you are opting for a Kotak Savings Account to park your emergency fund, create a standing instruction from your salary account or your business\/current account to transfer at least 10% of your income to your emergency fund account.<\/p>\n You only have to do this until you have enough money in your emergency fund to support you for 6 to 12 months of crisis.<\/p>\n If you are opting for an ICICI bank saving account, choose the minimum balance account. You don\u2019t need a fancy account for this purpose. It makes no sense to pay a fee for maintaining a minimum balance.<\/p>\n The best part of selecting an ICICI bank savings account is the iWish deposit scheme.<\/p>\n This is the perfect place to park your emergency fund. iWish deposits help you save funds for short to mid-term goals.<\/p>\n Since it\u2019s a deposit scheme, you also get the advantage of earning interest on your emergency fund.<\/p>\n And it\u2019s a short-term, no-commitment scheme, so you won\u2019t be paying any fees with withdrawals from your iWish account.<\/p>\n Setup an iWish deposit account by logging into your ICICI net banking dashboard.<\/p>\n Name your iWish deposit \u201cEmergency Fund\u201d and automate your monthly deposits here.<\/p>\n Again, start by transferring 10% of your income to this iWish deposit account<\/strong>. With 10% of your income going to this account, you will be able to reach your emergency fund goal rather quickly.<\/p>\n If you can fund your entire emergency fund in one transfer, do it. And move on to the next step.<\/p>\n Or, keep depositing every month until you get there.<\/p>\n Once you\u2019ve fixed your emergency fund, let\u2019s move on to the third step of automating your finances.<\/p>\n <\/p>\n The next step is fixing your retirement funds.<\/p>\n Saving for retirement has two main benefits:<\/p>\n The sooner you start contributing towards your retirement fund, the more wealth you\u2019ll accumulate when you reach your 60s.<\/strong><\/p>\n To give you context, I started my NPS account as soon as I hit 18 (I’ve been making money online<\/a> since I was 17). Even before I got my Demat account.<\/p>\n If I had started my NPS account just two years later at age 20, I\u2019d have lost a few crores from my retirement corpus.<\/p>\n There are three retirement funds I\u2019d recommend for everyone:<\/p>\n Out of all three options above, I recommend. starting with an NPS account, then a PPF, and finally investing in ELSS mutual funds.<\/p>\n An NPS account (National Pension Scheme) is a sovereign-sponsored initiative for citizens like you and me to start a retirement fund. An NPS works like a normal pension plan – you invest till you are 60 and once you reach there, you get paid an annuity every month.<\/p>\n How much you\u2019ll get paid every month in the form of a pension when you reach 60 years of age, depends on three things:<\/p>\n So start contributing to your NPS account today and watch it grow every year.<\/p>\n I recommend opening your NPS account via your bank, especially if you are an ICICI, IndusInd, Kotak or HDFC customer.<\/p>\n Else, you can also opt for an NPS account by visiting the official NSDL website here<\/a>. (Direct Link to NPS Registration).<\/p>\n There are two tiers of NPS:<\/p>\n NPS Tier 1 is eligible for a tax deduction on contributions up to Rs 1.5 lakh under Section 80 C and an additional Rs 50,000 under Section 80 CCD (1B) of the Income Tax Act, 1961.<\/p>\n There\u2019s another variation of Tier 2 which is a tax saver, but we are going to ignore it altogether. An ELSS fund makes more sense over it.<\/p>\n Once you open your NPS account, you will need to choose a fund manager. I recommend choosing either one of these:<\/p>\n Then, you will be asked to choose between three investment options:<\/p>\n First, choose the Auto Option.<\/strong><\/p>\n Forget about Conservative.<\/p>\n Then select moderate<\/strong>. For most investors, this is an optimistic yet safe approach.<\/p>\n However, you could also choose Aggressive, since your NPS fund is managed by experienced fund managers, and we are looking at decades for these investments to grow, the risks are comparatively low.<\/p>\n A few years back, investing in NPS was super difficult. Like really really challenging. You have to login into your PRAN account, fill up these forms, pay via debit card or net banking while paying a small transaction charge as well.<\/p>\n Now, it can all be automated.<\/p>\n With your NPS account, you get a virtual deposit account as well. It\u2019s called D-Remit. With this virtual deposit account, you get to contribute to your NPS account via bank transfer and get same-day NAV.<\/p>\n This means you can set standing instructions through your bank account to contribute towards your NPS account every month, automatically.<\/p>\nStep 1: Fix Your Bank Account<\/h2>\n
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Step 2: Your Emergency Fund<\/h2>\n
Why a savings account?<\/strong><\/h3>\n
How much should you deposit in your emergency fund every month?<\/h3>\n
How to Setup Your Emergency Fund<\/h2>\n
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Step 3: Setting Up Your Retirement Funds + Let\u2019s Save Some Tax!<\/h2>\n
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How to open an NPS account?<\/strong><\/h3>\n
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How to get your virtual D-remit NPS account details?<\/strong><\/h3>\n