Demonetisation: Develop digital spending strategy

Use a limited number of payment options and track the expenses

In the wake of demonetisation, you would have adopted several digital modes of transactions to deal with the shortage of cash. There is widespread expectation that the shift will make life easier. In reality, it will give rise to a new set of complications. The proliferation of multiple modes of digital money, from credit cards to online wallets, means individuals need a clear strategy in place before begining to use them.
 
Multiplicity of instruments
 
Many instruments are now available for digital payments. First, there is the debit card handed to you as soon as you open a savings account. You would also have credit cards. Next, there are online wallets offered by banks and independent providers. Another mode of digital transaction is the Unified Payment Interface (UPI). You also have options given by banks for electronic transfer of funds, like NEFT and RTGS.

 

Look at the nature of fund transfers you usually undertake. Then decide which modes of payment are best suited. For instance, if you have a credit card and are able to maintain a high degree of discipline in spending, you are better off swiping it instead of the debit card when out shopping or making payments on the internet. Using the credit card and then paying off the balance dues each month will allow you to enjoy free credit. Then if a person uses online taxi services regularly, having an online wallet account becomes necessary. On the other hand, if one is comfortable with net banking and using NEFT or RTGS, he might not need some of the other payment modes.

 
Using limited modes of payment will ensure you don’t find the task of managing these cumbersome.   
 
How many of each?
 
Another challenge is to decide on options to use within each payment mode — how many debit and crdeit cards, how many mobile wallets. Taking too many in each category will make again managing your finances a tiresome task. Two to three should be the limit for each category. For each card or wallet account, you will have to maintain records of where and when they were used. There will also be payments to be made. In the case of credit cards, bills will have to be paid before the due date. Your online wallet will have to be replenished as soon as it runs out of money.

 
Appropriate use  
 
Another aspect individuals need to figure is the appropriate instrument for different amounts and types of spending. Using many payment options and maintaining effective control over your budget will become a bigger challenge. With cash, you stop spending once you run out of it. On digital options like credit cards, there is always the risk of going overboard and spending way beyond what one can afford.
 
One way to deal with this problem is to clearly demarcate which instrument will be used for what purpose and fixing monthly limits for each. For example, household expenses could be met using one credit card, while expenses like eating out could be made using another. The dates on which the monthly credit card cycle ends will be a key factor for determining the card to be used for a specific type of spend, to maximise the free credit period. Similarly, online wallets could be assigned for certain types of expenditure, such as small daily purchases. For transferring larger amounts that run over a specified limit, say a thousand rupees, one could use electronic banking options. Maintaining this type of clarity is essential. As the number of digital payments, many extremely small, it will become difficult to keep track of what is being spent where.

 
Record keeping and security
 
Earlier, if expenses were made in cash and records were not kept, it was difficult to tell later when the amounts were spent. The situation has reversed. Each expense you make using the digital route will leave  a trail but at the end of the month, you could find it difficult to figure what the amount was spent for.
If a long list of expenses were made with a credit card or an online wallet, one should be able to check and tell where and when those were incurred. At the end of month, it will help you pinpoint the areas where you have a propensity to overspend. This will be possible only if you have kept a record of each spend.

 
Security is another issue. With cash, the threat was that someone would steal the amount you had on your person or in your house. In the case of digital money, one has to be alert, as the magnitude of threat is bigger. Your entire account is at risk.  
 
Being able to tell when and where you spent a particular amount will also enable you to spot if your account was wrongly accessed by someone else to perpetrate a fraud. Any item that one has not spent needs to be flagged immediately and brought to the bank’s attention. Doing this quickly is important, otherwise the security of the entire amount present in the account will compromised. One must maintain proper records of where each instrument was used, and for what amount. This should be tallied with messages from the bank or the account statement, to ensure the right amount is reflected.

BE SMART AND SAFE

• Use only those options or instruments that are essential for your transaction needs
• Using multiple options for similar use will create confusion
• Do not have more than two-three choices in each option, like credit card or online wallet
• Manage spends within each option, depending on availability of funds, and don't let spending spiral out of control
• Earmark different instruments for different types of spending
• Maintain records and cross-check amounts spent to ensure proper billing
• Bring any discrepancy to light immediately and take action to prevent fraud

The writer is a certified financial planner