“Income is eight annas, expenses are 10 annas, deficit is two annas…” thus goes a Tamil film song. In Hindi, we have the saying Amdani Atthanni, Karcha Rupiya from the movie and song by the same name. So is it that our spends are above our income or could we make the same spends through better planning? That’s where cash-flow management can come to the rescue. Here’s how you can get started to better management of your cash flow:LiquiditySufficient liquidity needs to be kept aside to take care of recurring expenses of the family. Monthly expenses and EMIs should be considered here. Also, annual expenses need to be provided for. Unforeseen expenses also need to be factored in. In some cases, special liquidity provision needs to be created, if there are disabled/ ailing dependants. Sometimes, people want to create a big corpus so that they can meet EMIs for a long period, even if their income stops. Demands for such a corpus have risen in a big way in the last two years, when many lost their jobs and found loans/ payment extensions hard to come by. Liquidity is normally suggested as an insurance against a stop in income for any reason — say, due to job loss or spike in expenses beyond normal levels. In such a situation, the liquidity margin comes in handy.Providing for specific expenses There may be expenses in certain months only, such as annual insurance premium, holiday expenses, etc. As these are not paid on a monthly basis, you need to make a provision for them. If sufficient bank balance is available, you can invest this surplus until the payment cycle. For example, if Rs 1.5 lakh is required in the month of January 2011, you can invest a lumpsum such that it matures in January 2011 with a maturity amount of Rs 1.5 lakh. In cases where a lumpsum cannot be invested, you can accumulate money monthly, ideally in an appropriate debt fund, so that it becomes available when the expense is due.Goal-related expenses There could be expenses based on your goals, such as the purchase of a car in the next 6 months. You may need to put a down payment for that. Again, an allocation needs to be done from the cash surplus or has to be accumulated over the months. In such a strategy, the expenses need to be identified in advance and the investment needs to be liquidated well before the payment due date.Investment selection While choosing the investment vehicle, care must be taken to ensure that the tenure matches the requirement for funds, returns are maximised, and that volatility and risk are factored in. For instance, it will be imprudent to invest in equity assets if the expense is six months away; it will be the right thing if the expense is due after 3-4 years. A proper choice here will ensure better returns. For instance, it would be a good idea to choose a money manager fund instead of a short duration fixed deposit, as the former would give better post-tax returns — debt funds have the advantage of paying a lower dividend distribution tax (14.16%) or taking advantage of indexation in the growth option. These seemingly minor choices go a long way in ensuring better returns within the framework.Regularise expenses Spread your expenses over time. For instance, it is a good idea to invest through systematic investment plans/ recurring deposits which ensures your outflows are fixed. Investment for tax purposes can be made through SIPs in ELSS funds.Allocation/ withdrawal tips  Allocate your investments such that the riskier or volatile funds are invested in on a monthly basis and the low-volatility funds can be invested in a lumpsum basis. Systematic transfer plans (STPs) are a good option to distribute a lumpsum investment over a period.When looking to make a withdrawal, those who have a big enough corpus in mutual funds could use a systematic withdrawal plan.Investing lumpsums You may get a bonus, LTA claim, reimbursements, maturity proceeds from past investments, etc. Since there are by nature not periodical, they get left out and typically get spent or invested in an ad hoc manner. While planning, all such cash inflows need to be taken into account and a clear allocation for them need to be put in place.The writer is a certified financial planner with runs Ladder7 Financial Advisories and can be reached at ladder7@gmail.com

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