Being in the business of financial planning we often come across individuals, who do not have an even flow of income and whose cash flows are rather erratic. This is mainly seen in case of people engaged in business or are self-employed professionals such as doctors, lawyers, chartered accountants, consultants etc. - whose source of income is variable. Likewise, some salaried individuals whose income mainly comprises of regular incentives / bonuses are also a part of this club.

A big challenge such individuals face is, while planning for their financial goals and achieve them comfortably. We recently dealt with a case where the individual’s monthly expenses were more than his monthly fixed income.

In our endeavor to educating individuals, we thought of why not present a case study of such a nature in financial planning; which could turn to be an eye-opener and a guidance for many such individuals.

So here it is...
 

Personal Details
Name	Shyam (Name changed to protect privacy)
Age	35 years
Marital Status	Married
Income (Fixed)	Rs 50,000 per month.
Income (Variable)	Rs 8,00,000 in September and March every year.
Liabilities	Outstanding Personal Loan of Rs 2.43 lakhs @ 15% p.a.
Expenses	Rs 90,000 per month (including EMI of Rs 10,000 p.m.)
Cash in Bank	Rs 2,50,000

Mr. Shyam a 35 year old individual was earning Rs 50,000 per month as a fixed salary and was also getting Rs 8 lakh as incentive after every 6 months in September and March every year. His monthly expenses were Rs 90,000 which included personal loan EMI of Rs 10,000. His only outstanding Liability was a personal loan which had an outstanding balance of Rs 2.43 lakh at rate of interest of 15% per annum. He also had some cash in the bank amounting to Rs 2,50,000

And here was Shyam’s Concern!
Even though his annual salary of Rs 22 lakh was sufficient to meet his annual expenses of Rs 10.80 lakh, on a monthly basis he was yet left with a deficit of Rs 40,000 (Rs 50,000 income – Rs 90,000 Expenses) to meet his regular expenses. He wanted to know how to manage his uneven cash flows and keep investing for his financial goals.

And here was PersonalFN advice to him...
 

1. Contingency Reserve: We advised him to create a contingency reserve of 12 months rather than 6 months, which we generally advise. You see, he required higher amount of contingency reserve so as to fund his monthly deficit and to make sure that his investments for financial goals continue without any break. . (Also Read: Sweep in Facility vs. Flexi Deposit, Which is better? to know how to effectively utilize your contingency reserve)
    
2. Prepay Personal Loan: Interest on personal loan was commanding a rate of interest @ 15% per annum, which was very high. Now since there were no fore closure charges on the same, we advised him to prepay it in October 2014 out of the incentives of Rs 8 lakh which he will receive in September 2014. . (Use our: EMI Calculator to calculate the EMI on your Personal loan)
    
3. Investment for Financial Goals: We also advised him to start investments worth Rs 35,000 per month from October 2014 onwards rather than from April 2014, as we had to make sure that he doesn’t run out of funds for his monthly expenses. (Use our: SIP Calculator to calculate the how much amount you need to invest to achieve your financial goal)
    

We created following Cash Flow chart for him to get detailed analysis of his monthly cash in bank balance:
 

Cash Flow for Financial Year 2014-15
Date	Inflows			Outflows
	Cash in Bank	Monthly Salary	Incentive	Monthly Expenses	Prepayment of Personal Loan	Investment for Goals
Apr-14	250,000	50,000	-	90,000	-	-
May-14	210,000	50,000	-	90,000	-	-
Jun-14	170,000	50,000	-	90,000	-	-
Jul-14	130,000	50,000	-	90,000	-	-
Aug-14	90,000	50,000	-	90,000	-	-
Sep-14	50,000	50,000	800,000	90,000	-	-
Oct-14	810,000	50,000	-	80,000	200,000	35,000
Nov-14	545,000	50,000	-	80,000	-	35,000
Dec-14	480,000	50,000	-	80,000	-	35,000
Jan-15	415,000	50,000	-	80,000	-	35,000
Feb-15	350,000	50,000	-	80,000	-	35,000
Mar-15	285,000	50,000	800,000	80,000	-	35,000
Apr-15	1,020,000	-	-	-	-	-

And what did he achieve?
 

1. We were able to create a contingency reserve of Rs 10.20 lakh by the end of April 2015. It was sufficient to meet 12 months of regular expenses, so as to save him from the worry of funding his monthly deficit.
    
2. Personal Loan on which he was paying hefty interest rate of 15% per annum was paid off. His monthly expenses reduced to Rs 80,000 per month from October 2014.
    
3. He was able to start monthly investment of Rs 35,000 which will continue in future as well without any break.
    

You see, we did all this through our Personalised Financial Planning Service.

If you are also facing the same situation as Mr. Shyam and need to realign your cash flows, then do not hesitate to call us on 022-61361200. You can also Schedule a Call with our investment consultant or even drop a mail at info@Personalfn.com and we will get in touch with you. We would be happy to plan your finances prudently to help you achieve your life goals.

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