Friday, February 15, 2013

8 costly wastes to eliminate in Money matters

Lean principles aren't just for corporate settings. It could make us as efficient personally as the productivity and quality improvements we see in organizations and teams. In knowledge world, personal Kaizen is an important tool as much as practicing Kaizen and Continous Improvements in the worksphere.

A major focus area of Lean to achieve improvements in quality, productivity and thereby boosting business, employee morale and group innovation is the relentless attack in eliminating waste. Theory states that there are 8 types of waste identified in Lean.

In financial world, money is lost for every mistake done. We pay more for every day delay to correct the mistake. No waivers on this. Applying the Lean principles and with recent repeated losses, I started realizing these 8 costly wastes that could have been easily avoid with simple discipline.

1. Interest and penalty payments: All this takes is to set reminder alerts and ensure funds are available and done on time. Be aware of bank holidays which can make just in time plans go awry. So better is to alert self 2 days in advance and force execute them to avoid hassles of wasting money on interests and penalties.
It is good to allow for auto payment schedules. However, make it a rule to check if the payments are debited on time and there are funds in the account. Otherwise the fortunes of 2 companies at same time are improved at cost of "you".

My resolution is to never make an interest payment.

2. Discretions vs recurring expenses on Credit: We all love to shop. I love to de-stress with mall hopping and splurging for myself on occasional times. After joining professional world and moving out far from family, I find shopping pleasurable not during festival or off season sale times, but when I find myself strained, stressed and the random "where is my life headed?" thoughts.
We are so used to home and car loans that they are by default advised to be acquired as assets through loans and EMI than blocking own complete capital. Makes sense as far as cash flow arguments are concerned. However beyond them, discretionary purchases on home care, luxury goods, items beyond needs and immediate use goods will be smarter if paid from savings and not using credit.
Credit is a wise way to use on recurring monthly spends so that patterns could be un-covered and the self-control to afford them becomes a habit. So far, I resisted the urge to live life on credit. These days I have 3 loans going on that drains my income by 10th of every month.

Splurge, Spend, Live a good life, but please, not on credit but through  savings.

3. Paying upfront service charges or subscription amount: I made this mistake recently. Luckily it was a bearable amount. It was my weakness to be benevolent at all times that made me the "bakra" (scape goat) for this sales team. Thankfully I negotiated to a far less amount that I could experiment with.

Wiser from experience, I would recommend learning to say a curt "NO", when some one is saying that for a better service or lesser running charges, they need advance fees. Who pays us like that? Why should we encourage it for others ? It is a interest free loan that we extend at our expense and it is not good for our pocket. E.g. Brokerages, Time-share holidays, etc. Unless the clause is easy to pro-rate the advance against the services we would use/consume and it is just a means of parking the funds for mutual benefit.

4. Maintaining balances: Scourge on market for bank products that allow us to maintain zero balance in savings but allow you to have a high relationship value. These days banks offer schemes that allow you to have better facilities on relationship value than savings account minimum balance. Zero balance accounts are good. But when your account is needed to debit funds through ECS or auto-payments, then you need to maintain balance in your account on said dates.

5. In-secure or hedged spending: We spend in hope to buy cheaper products or services buy alternate services that are cheaper than current provider. Well, this is sensible and a financial savvy thing to do. However, in this competitive world, please check with current service provider on a competing offer that their competitors have offerred. Ask them if they would like to match it for the offer. If so, the problem is solved. Otherwise, terminate your current relationship before taking on other relationship. Evaluating 2 services or products simultaneously makes you pay for the same value twice.
I did this with datacard service providers and have just managed to exit after rental loss of 3 months.

6. Multiple Investment Options: Too many eggs in one basket is diffcult to count and too many baskets with one egg is difficult to manage.

Choose investment options that is comfortable for self. Meaning the investment is understandable to operate, grow, and the downsides. In financial advisor terms, determine your risk profile. If you are told that the instrument is best suited for fast track growth or an instrument is safe, invest in your understanding on how they work.

I was advised that Options and Commodities are exciting ways to manage downside of holding stocks. Hence little investments in these instruments will be desired in my portfolio. I did listen, as I always do but never understood how they work and what is needed of me to make them work.
As expected, they resulted in waste of my precious resource - money. Not to say they are undesirable means, but just that it never was easy for me to learn.

7. Losing Attention: Coming from middle class background with emphasis on education to ensure working in adult age, the drive was to excel at work. For excelling at work we make adjustments, compromises, decisions, focus on our careers thinking they would give us a good retired life. It does and will do, but this focus will not enable your money and investments to appreciate.

Just as careers improve due to focus and attention for most part of waking time, investments and financial conditions can only improve with focus and attention to this important sphere. Investing and forgetting them is sure way of not reaping fruits when they are ripe but picking them up after they fall to ground.

I learnt to attend to money matters as much as I care for work. It is not a dichotomy but an essential truth that both are required to succeed and improve our living conditions.

8. Inventory at Home: There are so many things in our house that when we put a cost to each and the utility of them, we know what we have on hand. Alas, many of them are lying assets that are aging and losing their value.

So, as in lean, maintaining inventory is a waste in money world. We keep substantial investments in physical assets that lying unused they are an under utilized capital. These cannot be done away with, but they can be thought of utilized better to recover the value of inventory.

Give a thought to charity and joy of giving, if possible.

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