Spend wisely and you'll cope with sharp price surge

What does the future hold? Will I be able to manage my expenses? Can I provide for my family? Am I ready to handle medical emergencies?

Economic events are sometimes cyclical and frequently test those who are not well prepared. With increasing globalisation and lower trade barriers, events elsewhere in the world can affect us immediately. It is all the more pertinent to be money smart. How exactly can one achieve this? When do I start planning? Who should I approach? The questions seem equally frustrating in the "complex" world of banking.

The truth is, financial security is for all and there is no better time to begin planning for it than today.

Saving for a rainy day is a good starting point. Bt100 saved per day over 10 years could add up to Bt370,000. The importance of small accruals over time cannot be overstated. Locking up such deposits long-term should also earn a higher interest rate compounding the returns. A key element to savings however, is the inflation rates during the period. For example, a 10-per-cent interest rate on Bt100,000 earns Bt10,000 a year in interest. However, if the inflation rate during this period was 10 per cent, the purchasing power of Bt110,000 reduces by the same percentage point over the same period. Investments can provide better returns but they carry higher risks as well. It is therefore important to assess one's risk profile prior to committing to an investment.

Personal discipline is key to developing financial discipline. Consumption could be paid for out of past savings, current income or future "expected" cash flow. Increased consumption is also reflective of our expectation of future cash flow and if used well can improve our lives in a predictable way.

The lead indicator of such a tipping point is to be watched closely. Some of them include the inability to pay off card expenses in full; debt repayments of 30-40 per cent of monthly income; and total borrowing in excess of 12-13 times annual income.

The first step should be tighter control of further expenses while managing this debt through a longer-term single debt programme. Banks look for key indicators of a customer's creditworthiness including assets held, ability to pay off their dues on time, length of time they have been repaying without any hiccups, and even stability in personal and work life.

Structuring existing debt repayments is equally important in managing monthly cash flow. Having excessive debt over a short period of time could make monthly payments more difficult. Debt consolidation and balance transfer could be one such tool in managing debt.

Smaller payments consistently made over time also protect one's credit history with the bank allowing further credit access possible. Longer payment periods, however, attract interest over a longer period and that needs to be balanced against paying smaller monthly payments.

The key to restructuring payments is a balanced mix of lower interest rates, longer tenors and smaller monthly instalments. These of course need to be matched by personal discipline of "borrowing wisely and for a good reason".

Financial preparedness in the form of regular savings, personal discipline and prudent restructuring can help protect you from the shocks of an increasingly uncertain world.

Shahnawaz Lalani is Citibank's head of consumer lending.