Budget Planner for Low-Income users with a variable income
People with a fixed monthly income do not find planning their monthly expenses that simple. That kept me wondering, then how do people with fluctuating variable daily incomes plan their budget? Fruit sellers, Vegetable vendors, Shopkeepers etc are all into seasonal businesses. Their daily income fluctuates as it depends on various external factors like weather conditions, demand & supply of goods in the market, time of the year etc. Their total monthly savings is unpredictable. However monthly expenses like the electricity bill, house rent, food etc are fixed and need to be paid by the end of the month. They even need to save for their short term goals like buying a sari for mother on Diwali, repair cycle puncture etc as well as long term goals like renovating the house, buying a scooter etc. Then how do these ‘variable’ low-income group users account for all their additional discretionary expenses? How do they plan their finances? This project is an attempt to understand why these users find it difficult to achieve their financial goals within a stipulated time period. It also explores ways to help them save better by taking informed decisions at any given point of time.
42% of rural Indians have their savings in cash –under pillows, in cupboards, in bags etc. They are victims of inflation. Moreover, there is a high possibility that the money may get stolen or grabbed by their spouses or children. They neither reap the benefits of interests given by banks.
User studies I conducted in Mumbai & Dapoli with 20 users showed that these variable low-income group users find it very difficult to plan their budgets. Keeping track of all the cash inflow & outflow from their pockets is not easy. As electronic cash has the potential to track a user’s income & expenses automatically, the potential of m-commerce was explored further.
Moreover, mobile phones are expected to be channels for mobile commerce in India especially among low income group users because of its specific characteristics such as ubiquity, personalization, flexibility, penetration in villages, growth rate, minimal cost, instantaneous reach and comfort level of users with the medium (over its counterparts).
And the Government is also looking to spread banking and financial services to remote areas as part of its inclusive growth programme. Since there are more than 60 crore mobile users in the country, it offers a good conduit to reach out to the unbanked through this medium.
Contextual enquiries were conducted with 20 users from Mumbai and Dapoli to track their monthly saving patterns. Artifacts of the user such as calendar on wall, personal diary, pass book, bills etc were studied in detail to understand how they keep track of their finances. 6 users were given diaries to note down their expenses on a day-to-day basis. Another 3 users were asked to recollect their weekly spending and note it in the diary. Expenses like pocket money given to daughter, coconut money when guests arrived, mobile re-charge etc were skipped out. These untraceable petty expenses summed up to Rs 200 to 300 at the end of the month. For low-income group users with monthly earnings of Rs 3000, an untraceable 300 is 10% of their budget. Another set of 8 fruit sellers were also asked to guess the amount of money in their pockets at that given point of time. 6 out of 8 users were unable to do so. To analyze the situation better, even low-income users with a fixed monthly income were studied.
Inferences and Insights
Types of Income :
Fixed monthly salary, Variable daily wage earnings, Occasional Income
Types of Expenses :
Fixed, Variable, Discretional, Emergency, Savings, Buffer
- Fixed expenses – house rent, bill payments, children’s fees, fruits brought in bulk every day, transportation cost from the market etc
- Variable expenses – Mobile recharge, Groceries, Household items etc
- Discretionary expenses – friends visit, travel, go for movie, give son pocket money, eat food in a restaurant, go for a holiday etc
- Emergency expenses- medical treatment, death in the family etc
Expenses of a low-income group user can be classified into the following types:
In case of a financial crisis, their fixed expenses remain the same. They compromise with their variable expenses whereas they cut down the discretionary.
However, ‘variable’ low-income group users find it very hard to differentiate among all these expenses. Because they are unable to identify their ‘discretionary income’, they find it difficult to save a pre-defined amount within a given time period.
Roadside vendor buy their commodities in bulk and get paid for the goods they sell during the day. As a result, they carry Rs 1000 –Rs 2000 in their pockets every day. They can estimate their savings for the day. However, they find it very hard to comprehend their ‘discretionary income’ for the day. Thus when it comes to making an additional expense like going out with friends for dinner etc, they are uncertain if this additional expense will hamper their estimated monthly savings or not. Even these users believe in living life to the fullest and wouldn’t want to unnecessarily cut down an expense if they can adjust it in future. Thus if a roadside vendor is able to identify the amount he has at his discretion at any given point in time (such that he has taken into account all his other future expenses), it would help him take an informed decision. He would then be able to spend wisely, save more comfortably and achieve his long & short-term goals.
Discretionary income can be defined as a portion of an entity's income available for saving, or spending on non-essentials. It is what remains after expenses for basics (such as food, clothing, shelter, utilities) and prior commitments (such as school fees, loan, bill payments etc) are deducted from the disposable income. Discretionary income can be calculated by subtracting the ‘monthly fixed & variable expenses’ from a man’s ‘monthly income’.
- Transactions: to enable mobile-to-mobile payments (assuming that cash is being transacted electronically)
- Financial data: to analyze the inflow-outflow of cash saved on the phone post a transaction
Based on purpose of use, the mobile application can be divided into 2 parts:
Scenarios like face-to-face transaction, long distance money transfer, contribution of money by multiple people, the tangible aspect of money when it comes to gifting someone cash on their wedding etc were explored. Paradigms were set such as the ‘money giver’ always initiates the transaction as he is at risk & needs feedback about the account his money is getting transferred to. However, there are special cases like requesting for credit, money giver has forgotten his phone at home etc, wherein even the recipient can initiate a transaction.
Certain transactions like buying fruits in bulk from the market at around 7am, is periodic i.e it takes place everyday excluding Sundays. In these cases certain text boxes will get automatically filled. The user just needs to type in the ‘Amount’ and confirm his transaction with the password.
As the system has a record of all the users past transactions, this data can help him analyze his monthly spending trends. It can recommend an ideal budget plan as well as send caution reminders incase he exceeds his limit. This in turn would help the user attain his financial goals in a stipulated time period. The user could either be organized or unorganized. Thus the menu navigation is such that a user can complete a specific task depending on whenever he wishes to avail credit or set a financial goal or maybe plan his budget. All tasks are independent.
Kindly note, detailed paper prototypes of the below 3 iterations have been designed & tested with users.
In iteration 1 the application had a ‘Pay for’ option wherein a user could select any of the given expenditure categories – travel, food, business, mobile recharge, discretionary etc. The intention was to help the system identify the category a particular expense belonged to. This would help in calculating the spending trends of a user over a period of time. E.g. for the month of January Rs 1000 was spent on food, 200 was spent for mobile recharge etc. Also it would aid in calculating the discretionary income- the savings of the previous day minus all the fixed expense that needs to be accommodated. However when this interface was tested with users, it was found that they could not easily differentiate among these categories E.g. ‘Going to roam with friends - travel’ is a discretionary expense whereas Going to buy fruits in bulk from market - travel’ is a daily fixed expense. Similarly, when a user goes out for dinner with his friends on the weekend, it is part of his discretionary expense. However, he would add it from his ‘food’ account.
In iteration 2 the user had to add his expense from either his ‘fixed’ or ‘discretionary’ account.
Clubbing all payments made to a single number or group of numbers together helps project the users spending trends. E.g. all payments made to 54321 are taken as mobile payments. In such a case, a user would want to keep track of his growing business but he might not want to keep track of the money he pays a beggar. Thus he can always delete or rename a group and save it for further reference.
In iteration1 bar diagrams were used to represent expenses. This was changed to pie charts in iteration 2. Pie charts were used to represent analyzed data, as expenses are not comparative graphs- each expense has its own maximum limit & cannot be compared to other expenses. In the below figure; the outer circle represents the user’s estimated monthly expenses whereas the coloured area represents his actual monthly expenses. After testing, it was found that just the total discretionary income did not help the user take an informed decision. In fact, the discretionary value was misleading. Users with a negative discretionary income wondered why it showed so when they had sufficient balance in their phone.
The discretionary income for a variable income group user is dynamic and would change depending on the date his fixed expenses are due. If he has to make his bill payments at the end of the month, he has more flexibility to spend at the start of the month and save accordingly towards the end. Thus, in order to take an informed decision on whether to make an additional expense or not (apart from your essential expenses), it is important to be aware of the following amounts.
- Current balance in the phone
- Fixed expense that needs to be saved before the due date
- Current saving trend (your potential to save & current savings)
The application also has a financial calendar option. This financial calendar gives the user an overview of upcoming events in the future as well as helps him make note of all major expenses in the past. The user can visit an upcoming date & set his financial goals. He can also prioritize his goals as essential or desirable. The system would then either enforce the saving or send him caution reminders. As the system is aware of the user’s monthly savings, it can even calculate the due date of his goals. Keeping track of all pending payments is also possible. To help the user resist the temptation to spend, only a pre-specific amount is allotted to the phone for transactions.
Saving money does not just imply the cutting down of expenses. But it is about living life to the fullest & making the right payment decision. These informed payment decisions can be achieved by identifying ones Discretionary income at any given point of time.To help variable low income group users save, it is important to help them plan their budget. This can be ensured if they are able to comprehend their discretionary expenses at any given time.
- Current balance available in hand
- Current monthly savings
- Fixed expenses to be paid at the end of month
- His current saving trend (his capacity to save)
Discretionary income is also made up of various components. In order to take an informed payment decision, the user should be aware of the following amounts :
This will in turn help him achieve his financial goals within a stipulated time period.Also m-commerce needs to evolve from just a mobile payment mode to an enriching all-in-one experience.