Tracking your expenses

You know your income, but do you know your expenses? If you were to approach a trained financial planner, he/she would usually would want to establish the amounts you are spending. While some of the expenses are annual ( insurance payments, tax payments, renewal fees), monthly ( rent, utility payments), some weekly and some sporadic. You should also not miss out on those expenses which are unplanned. Capturing those unplanned shopping trips and long drives which burnt 1K worth of fuel are also important. The important part is to capture them and include them in your financial plan.

While most control freaks like me would logically have an excel sheet, going into details in an excel sheet is a very tedious thing. I found this excellent site www.expenseview.com where it allows setting up expense accounts and tracking them. Check it out, its worth a try.

Why am I trying it? I am planning to buy some term insurance and would like to get a hang of how much I am actually spending and on what. Although I have a fairly good idea in big buckets, knowing the details will help me understand how these expenses will behave over the next few years ( shopping is a very small component now, am sure it will explode ;-) ). With greater income, I am trying to see if I can flush in more money to my investments.

Let me know what you think of expenseview.

Are Indian Chit funds equivalent of P2P lending?

This post is primarily triggered by this new (?) concept which is taking off in the west - called Peer- to-peer (P2P) lending. While there are a lot of technicalities involved , at a stripped down level, the concept is - there are a group people who want to lend and there are a group of borrowers. P2P is primarily trying to bring these two through low costs media like internet and social network sites like facebook in the US. So why the need to invent a new mode of lending?

When I want to earn some interest on my savings, ( I would invest in equities !!) but for the portion that needs to go into the debt part ( you should should should have a balanced portfolio mind you!!) I keep them in banks. The banks give me x% and then lend it to corporates and other people who need funds at x+ delta %. The additional interest is called by Net interest margin figure ( NIM) in the analyst statements check it out. The spread is supposedly to cover for the various costs - admin, sales, Delinquencies, salaries etc..... but most banks make a lot of money in profits. While as a shareholder , I wouldn't mind, as a customer from both sides , I would like low cost options - enter P2P lending.

I think it will work fairly well in the US and in other countries with well developed credit rating systems. To be eligible for a loan on most P2P lending systems you need to have a minimum credit rating and even then even if you have large outstandings then you do not qualify. The network charges some admin expenses but the net as a medium will lower the costs significantly. Typically the network will also ensure they get a collection agency to collect ( unlike in India, I assume these guys are not goons !!) and report any default to the credit rating agencies.

So the most important component , the credit score is missing in India. CIBIL , the credit bureau has started in India, but a guy like me who has had no bounced cheques, no credit roll over, a fully repaid education loan, partly paid personal loan will still get treated like the same jetsam/flotsam who have multiple defaults.... so P2P is a far call in India still...

But chit funds, where few people get together, pool a sum of money for a fixed period and one of the participants gets the kitty by bidding for it , is quite similar a setup I think. while currently I think chit funds are being regulated by RBI ( need to check!) , I think its a wonderful instrument for people who do not have access to normal banking channels but have a good social network. Also maybe this model needs to checked by our uber cool Micro finance institutions and not try to become proxy banks and increase the costs...

Caught in an investment bind

Right now I am evaluating a few investment opportunities :

1) locking in some returns by going into a close ended fund heading into redemption in the next 18 months
2) some value picks which came through my filters- where I have not been able to research my them : Currently evaluating : Areva T&D ( has made a move over the last 2 days - maybe a missed opportunity), the other value pickers favourite - Kirloskar Oil engines ltd, Paramount communications, Prajay Engineers, birla corporation.... hmm, where will I go, will study over the weekend
3) An exchange traded fund ( Whats that? - will post the next time) in a sector where I think there is a lot of opportunity.
4) Safe haven investment - bag the blue chips - L&T, SBI, Reliance

Whats the catch - I dont have money :-) ..... so much for planning. I have just booked about 115% + annualised returns on some cement investment ( avg holding 30+ days) - While I still hold some cement stock and am impressed with their pricing power, if it reaches further levels, i will exit further and see if I can move my profits elsewhere.... but atleast till 2009 beginning, I will love the sector - what will happen then - supposedly some supply will come through easing the pricing power.

And as an aside, my experience with my investment in Fixed Maturity Plan of HDFC has been good. If this continues, maybe I will move a higher amount to the FMP mode. ( I intend to post about FMPs and ETFs sometime very soon. Maybe I need also check out if there are any index funds in the sector I am targeting - Good news - SEBI has capped fund management fees at a lower level than active managed funds....