Money is an integral part of our lives. Based on our circumstances, our experiences, our education etc., we develop certain attitudes and perceptions about money. Some of us may be reckless spenders and some too stingy. Some may be good investors and some not so good. Some may be highly money minded and some least concerned about it. Some of these perceptions may be good and some wrong.
And, money is also an important parameter in our relationship with our spouse, apart from the other aspects in life. Therefore, the attitudes and perceptions that both partners have about money, play a very significant role in how the ‘financial relationship’ between them pans out.
If the partners have ‘financial like-mindedness’ then this relationship can be very enjoyable. Else one can have a potent source of conflict, which can wreck relationships.
Therefore, just as with other issues, the partners need to ‘work’ on developing a healthy financial relationship.
Understand your partner’s financial behaviour
Have you have given a serious thought to your spouse’s outlook towards money? To his/her feelings, beliefs and attitudes? Or tried to understand the motivations and apprehensions behind his/her financial behaviour? In 8 out of 10 cases the answer would be ‘No’.
Therefore to start with, think - Is your spouse comfortable with money or is insecure about it? Is he/she a spendthrift or a miser? Does he/she keep detailed accounts or is careless about money? What are the saving patterns? Etc.
Having mapped your spouse’s financial conduct, match it with yours. And you shall have a fairly clear idea of the areas where you both generally tend to agree as also the points of differences. This becomes the starting point to developing a healthy and positive financial relationship with your partner.
Talk about money
Have an open and honest discussion. Express clearly your thoughts and perceptions about money. Listen patiently and objectively to your spouse’s beliefs, concerns, ideas.
Both need to appreciate each other’s good points about the financial behaviour, while the shortcomings & concerns should be handled maturely. The strong points should be strengthened and the differences ironed out.
It is the lack of communication, which usually aggravates the differences of opinion and can later lead to some serious problems. High-value purchases, important financial decisions, large investments etc. should be a joint effort. Consulting each other is necessary. Taking such decisions unilaterally can seriously undermine the relationship.
Budgeting and investing
Having understood each other’s financial outlook, we now need to go down to the actual business.
The first step is to jointly evaluate your financial situation – the incomes, the expenses, the liabilities, the assets etc.
Next, work out the financial plan
► How much you can allocate for household expenses? How will it be financed? Will you pool your incomes or keep it separate?
► What are the long-term goals – house, car, children’s education? What amount should be invested? Where? For what period?
► How much money should be kept aside for emergencies?
► What should be the retirement plan?
Having agreed upon an allocation plan, you need to put it in practice and then monitor it regularly. The short-term expenses could be reviewed say once a month. While the long-term investment say once a quarter.
One important point. Every member in the family will have some aspirations. We all love to possess the goodies in life. The man may desire the latest gizmo, the wife a new designer dress, the children a new toy or bike. You will need to priortize and make room for everyone’s desires in the budget.
These efforts will go a long way in making your financial future secure and happy. It will reduce arguments on what to buy and what is not affordable; what is wasteful expenditure and what is useful; which investment is good and which bad.
Give each other some ‘money’ space
We are all aware of the need for a personal space in any relationship, including marriage. The same holds true for money too.
Therefore, it is extremely important that the husband, the wife and the children should have some small amount to themselves, which they can use in any manner they feel good about – splurge, save, donate etc. - without feeling guilty or having to justify it.
There should be a so called ‘no questions asked’ amount allocated to each one in the budget, which one need not explain or account for.
Who will manage the money
Usually, the man considers himself as the boss of the house and more often than not, it is he who manages the money. This could be due to him being the bread-winner and the preconceived notion that he is better at finance than the woman.
There is need to break these stereotyped beliefs. It may be possible that the man has better bargaining skills. And the wife is more rational and objective when it comes to investing money. Hence, the man may be better suited to handle the day-to-day household expenses and the wife in managing wealth.
Examine each other’s expertise and then decide who will do what. Divide the work according to the skill. Keep each other informed about your decisions/actions. While the money management may be divided, the overall financial picture should be clear to both of you.
How wealthy you are is not important. Important is how you both manage whatever you have. Important is how you both enjoy spending it together. Important is how grow your wealth to fulfil your bigger dreams. Important is how both deal with financial emergencies. And for all this communication and building-up financial compatibility is a must. A financially happy and secure future is a team effort - not a one-man (or one-woman) show.
Friday, March 14, 2008
One of the best budget for individual taxpayers
For individuals
The positives
i. The special feature has obviously been the hike in basic exemption limit to Rs 1.5 lakh. For women the exemption limit has increased to Rs 1.8 lakh and for senior citizens to Rs 2.25 lakh. Moreover, even the slab rates have been changed and these new slab rates will bring in a lot of saving for the individual taxpayers. What you will save:The minimum income tax saving for an individual as a result of new budget proposal would be Rs 4,120, while the maximum saving for those earning income upto Rs 5 lakh, would be to the tune of Rs 45,320. Definitely, it is a big saving for an individual taxpayer. ii.Reverse mortgage rules have been clarified which will help senior citizens in particular to take advantage of the provisions concerning reverse mortgage.The negativesi. Individual taxpayers will not be happy about the provision relating to shot-term capital gain. Till no we have enjoyed tax of only 10% on STCG but now the STCG tax payable would be 15%.
ii. Also, another important feature which is missing in this year’s budget is the request of salaried employees for a standard deduction from their salary income. No standard deduction has been granted in the budget proposal.
iii. Also, in respect of perquisites, the difference between the tax treatment of government employees and private employees with respect to residential accommodation has not been done away with in this year’s budget.
For corporates
Although this budget has been good to the individual taxpayer, it has not been so for the corporate taxpayers because the fringe benefit tax provisions and other connected provisions have not been altered in the way the taxpayers wanted it.
The positives
i. The special feature has obviously been the hike in basic exemption limit to Rs 1.5 lakh. For women the exemption limit has increased to Rs 1.8 lakh and for senior citizens to Rs 2.25 lakh. Moreover, even the slab rates have been changed and these new slab rates will bring in a lot of saving for the individual taxpayers. What you will save:The minimum income tax saving for an individual as a result of new budget proposal would be Rs 4,120, while the maximum saving for those earning income upto Rs 5 lakh, would be to the tune of Rs 45,320. Definitely, it is a big saving for an individual taxpayer. ii.Reverse mortgage rules have been clarified which will help senior citizens in particular to take advantage of the provisions concerning reverse mortgage.The negativesi. Individual taxpayers will not be happy about the provision relating to shot-term capital gain. Till no we have enjoyed tax of only 10% on STCG but now the STCG tax payable would be 15%.
ii. Also, another important feature which is missing in this year’s budget is the request of salaried employees for a standard deduction from their salary income. No standard deduction has been granted in the budget proposal.
iii. Also, in respect of perquisites, the difference between the tax treatment of government employees and private employees with respect to residential accommodation has not been done away with in this year’s budget.
For corporates
Although this budget has been good to the individual taxpayer, it has not been so for the corporate taxpayers because the fringe benefit tax provisions and other connected provisions have not been altered in the way the taxpayers wanted it.
How about some gold for the volatile times?
The love for gold in India is legendary. Besides bank fixed deposits (FD), it has historically been one of the most preferred ways of investing money. This is especially true of the rural areas, where even the penetration of banks is low. So there has always been a good demand for gold in India.
Factors such as:
(a) The volatility in the equity markets worldwide,
(b) Concerns of the United States recession,
(c) Inflationary pressures due to high oil, commodities and food prices and
(d) Weakening dollar -- have generated a lot of interest in gold amongst the investors worldwide. So we have seen the prices of gold more than double from around Rs 6,000 in early 2006 to more than Rs 12,000 recently.
Traditionally, the only option available to buy gold was in the physical form. But with the launch of Gold Mutual Funds (ie, the Gold Exchange Traded Funds - ETF), you can now buy gold in the demat form. If you were interested in buying gold, you would need to broadly answer two questions:
(a) Should I invest in gold and
(b) If yes, then which is better – physical gold or gold ETF?
Since the answer to the second question is simpler, let’s look at that.
Physical gold or Gold ETF?
In case gold is being bought purely for investment purposes, then Gold ETF scores over physical gold.
1. Low cost: When you buy Gold ETF you have to pay only the brokerage charges, which is usually around 0.5%. Vis-à-vis, you may have to shell out between 10 and 20% as premium and/or making charges if you buy physical gold. To store physical gold, you have to incur locker/insurance charges, while in ETFs you pay the annual fund management charges of 0.5-1%.
2. Transparency: For ETFs, the rates are quite transparent as they are linked to the international prices. But there is no commonality in prices of gold across various jewellers/banks even within the same city.
3. Purity: You need not be concerned about the purity of gold in Gold ETF.
4. Security: No one can steal your Gold ETF units.
5. Capital Tax Gains: In case of physical gold, the long term capital gain tax becomes applicable only when the holding period exceeds 3 years. This limit is just 1 year in case of Gold ETFs.
6. Wealth Tax: Physical gold attracts wealth tax whereas Gold ETF is exempt from wealth tax.
7. Convenience: Just call up your broker and your job is done. You don’t need to visit the nearest jeweller with loads of cash.
Thus Gold ETF offers a convenient, safe and hassle-free way of investing in gold besides lower expenses as compared to buying physical gold. However, if the gold has to be used as jewellery also, then of course there is no choice.
As regards choosing between a jeweller and a bank, the next-door jeweller is usually a better option as presently the banks can only sell gold but cannot buy it back and the premium also could be higher.
There are both proponents and opponents to investing in gold. Gold is essentially a game of demand and supply. And it is not easy to predict the demand-supply scenario because of multiple factors – both national and international - affecting it.
But if you look at the past 15-20 years’ record, it is seen that gold is a hedge against inflation. Over the last 20 years, the average return from gold has been around 7% as against 16-17% from equity.
But if you were to look at ‘annual returns’ over the last 2 decades, you will find the returns to look like this:
Years Returns
First 3 years -2 to -17% (negative)
Following 11 years 1 - 7%
Following 3 years 11 - 17%
Following 3 years 26 - 33%
So, if the past trend continues, you can expect around say 6-9% returns from gold in the long-term. In the short-term the scenario can be quite volatile. There can be both high gains and high losses depending on how the short-term factors play out.
It could be said that you may invest a small portion of your corpus in gold as a means of portfolio diversification. But you should not expect high returns, especially the kind of returns you might have seen in the recent past. Equities and real estate would still be a better bet for wealth creation.
Factors such as:
(a) The volatility in the equity markets worldwide,
(b) Concerns of the United States recession,
(c) Inflationary pressures due to high oil, commodities and food prices and
(d) Weakening dollar -- have generated a lot of interest in gold amongst the investors worldwide. So we have seen the prices of gold more than double from around Rs 6,000 in early 2006 to more than Rs 12,000 recently.
Traditionally, the only option available to buy gold was in the physical form. But with the launch of Gold Mutual Funds (ie, the Gold Exchange Traded Funds - ETF), you can now buy gold in the demat form. If you were interested in buying gold, you would need to broadly answer two questions:
(a) Should I invest in gold and
(b) If yes, then which is better – physical gold or gold ETF?
Since the answer to the second question is simpler, let’s look at that.
Physical gold or Gold ETF?
In case gold is being bought purely for investment purposes, then Gold ETF scores over physical gold.
1. Low cost: When you buy Gold ETF you have to pay only the brokerage charges, which is usually around 0.5%. Vis-à-vis, you may have to shell out between 10 and 20% as premium and/or making charges if you buy physical gold. To store physical gold, you have to incur locker/insurance charges, while in ETFs you pay the annual fund management charges of 0.5-1%.
2. Transparency: For ETFs, the rates are quite transparent as they are linked to the international prices. But there is no commonality in prices of gold across various jewellers/banks even within the same city.
3. Purity: You need not be concerned about the purity of gold in Gold ETF.
4. Security: No one can steal your Gold ETF units.
5. Capital Tax Gains: In case of physical gold, the long term capital gain tax becomes applicable only when the holding period exceeds 3 years. This limit is just 1 year in case of Gold ETFs.
6. Wealth Tax: Physical gold attracts wealth tax whereas Gold ETF is exempt from wealth tax.
7. Convenience: Just call up your broker and your job is done. You don’t need to visit the nearest jeweller with loads of cash.
Thus Gold ETF offers a convenient, safe and hassle-free way of investing in gold besides lower expenses as compared to buying physical gold. However, if the gold has to be used as jewellery also, then of course there is no choice.
As regards choosing between a jeweller and a bank, the next-door jeweller is usually a better option as presently the banks can only sell gold but cannot buy it back and the premium also could be higher.
There are both proponents and opponents to investing in gold. Gold is essentially a game of demand and supply. And it is not easy to predict the demand-supply scenario because of multiple factors – both national and international - affecting it.
But if you look at the past 15-20 years’ record, it is seen that gold is a hedge against inflation. Over the last 20 years, the average return from gold has been around 7% as against 16-17% from equity.
But if you were to look at ‘annual returns’ over the last 2 decades, you will find the returns to look like this:
Years Returns
First 3 years -2 to -17% (negative)
Following 11 years 1 - 7%
Following 3 years 11 - 17%
Following 3 years 26 - 33%
So, if the past trend continues, you can expect around say 6-9% returns from gold in the long-term. In the short-term the scenario can be quite volatile. There can be both high gains and high losses depending on how the short-term factors play out.
It could be said that you may invest a small portion of your corpus in gold as a means of portfolio diversification. But you should not expect high returns, especially the kind of returns you might have seen in the recent past. Equities and real estate would still be a better bet for wealth creation.
Sunday, February 24, 2008
After instant noodles, instant insurance!
Some of us use microwaves. And for some of us junk food doubles up as a meal. Some of us seem to prefer broadband to dial-ups and T20 to a test match. Why? Because we want things to happen, fast!
Similarly in the world of personal finance, first there was Internet banking, then online trading and the latest in the bandwagon, OTC or over-the-counter insurance. Companies like Reliance Life Insurance and Birla Sun Life Insurance have already launched this product, while others like SBI Life Insurance are planning to come out with it soon.
How it works
The bottom-line: you get an insurance policy, instantly. All you need to do is fill up a one-page form and voila, you are the owner of an insurance policy. No long forms and medical tests. All it takes is a few minutes. Like microwave popcorn. But alas, haste makes waste.
Read the fine print
When you sign this one-page proposal form, you are actually signing a declaration of your good health. You are telling the insurance company that you are healthy, that you have no pre-existing illnesses and that you are worthy of being insured. In your haste, if you give incorrect details or conceal information, remember that the chances of a claim rejection are high.
In fact, numbers from IRDA’s grievance cell have an insightful story to tell. Of about 4,500 complaints it received a few years back, 15 to 17 per cent were related to rejection of claims, due to non-disclosure of pre-existing illness at the time of taking the policy. But this is not just a local phenomenon. According to studies recently conducted in the UK, almost 15 per cent of total claims made on critical illnesses were declined. Of these, 26 per cent had not made true and fair disclosures when they bought the policy.
OTC insurance, a good bet?
“It may seem like an alluring method to buy a policy. But buying it through the conventional mode is the best way,” says financial domain trainer PV Subramanyam. 47-year-old Milind had applied for a unit-linked insurance policy through the conventional mode. As mandatory, he had go for a medical test after which he received a letter saying that the insurance premium had been increased from Rs 4 per Rs 1,000 to Rs 12 per Rs 1,000 because his medical reports suggested that he had high blood sugar. Milind was not even aware of his medical health until he underwent the mandatory medical test. Had he applied under the OTC mode, he would have signed off claiming that he was medically fit. If a claim arose, it would have been rejected on grounds of non-disclosure.
What if you disclose your illness?
'If a person is already suffering from any illnesses mentioned in our health questionnaire, such case would be underwritten in normal course after conducting the required medical tests wherever necessary,' says P Nandagopal, President and Chief Executive Officer, Reliance Life Insurance Company Limited.
Subramanyam adds, “It is quite likely that premiums of these policies would be much higher compared to other insurance plans mainly because the company is taking a high risk in insuring your life without any medical check-up”.
A few questions you will be asked while buying OTC insurance:
Similarly in the world of personal finance, first there was Internet banking, then online trading and the latest in the bandwagon, OTC or over-the-counter insurance. Companies like Reliance Life Insurance and Birla Sun Life Insurance have already launched this product, while others like SBI Life Insurance are planning to come out with it soon.
How it works
The bottom-line: you get an insurance policy, instantly. All you need to do is fill up a one-page form and voila, you are the owner of an insurance policy. No long forms and medical tests. All it takes is a few minutes. Like microwave popcorn. But alas, haste makes waste.
Read the fine print
When you sign this one-page proposal form, you are actually signing a declaration of your good health. You are telling the insurance company that you are healthy, that you have no pre-existing illnesses and that you are worthy of being insured. In your haste, if you give incorrect details or conceal information, remember that the chances of a claim rejection are high.
In fact, numbers from IRDA’s grievance cell have an insightful story to tell. Of about 4,500 complaints it received a few years back, 15 to 17 per cent were related to rejection of claims, due to non-disclosure of pre-existing illness at the time of taking the policy. But this is not just a local phenomenon. According to studies recently conducted in the UK, almost 15 per cent of total claims made on critical illnesses were declined. Of these, 26 per cent had not made true and fair disclosures when they bought the policy.
OTC insurance, a good bet?
“It may seem like an alluring method to buy a policy. But buying it through the conventional mode is the best way,” says financial domain trainer PV Subramanyam. 47-year-old Milind had applied for a unit-linked insurance policy through the conventional mode. As mandatory, he had go for a medical test after which he received a letter saying that the insurance premium had been increased from Rs 4 per Rs 1,000 to Rs 12 per Rs 1,000 because his medical reports suggested that he had high blood sugar. Milind was not even aware of his medical health until he underwent the mandatory medical test. Had he applied under the OTC mode, he would have signed off claiming that he was medically fit. If a claim arose, it would have been rejected on grounds of non-disclosure.
What if you disclose your illness?
'If a person is already suffering from any illnesses mentioned in our health questionnaire, such case would be underwritten in normal course after conducting the required medical tests wherever necessary,' says P Nandagopal, President and Chief Executive Officer, Reliance Life Insurance Company Limited.
Subramanyam adds, “It is quite likely that premiums of these policies would be much higher compared to other insurance plans mainly because the company is taking a high risk in insuring your life without any medical check-up”.
A few questions you will be asked while buying OTC insurance:
- Are you currently taking any medication or drugs other than minor conditions (for example: colds and flu) either prescribed or not prescribed by a doctor or have you suffered from any illness, disorder, disability or injury during the past five years which has required any form of medical or specialised examination (including chest X-rays, gynecological investigations, pap smera or blood tests) consultation, hospitalisation or surgery?
- Do you suffer from any medical ailments e.g. diabetes, high blood pressure, cancer, respiratory disease (including asthma), kidney or liver disease, stroke, any blood disorder, heart problem, hepatitis B or C. tuberculosis, psychiatric disorder, paralysis and coma, HIV/AIDS or a related infection?
- Do you have any form of physical impairment, disability, handicap or defect?
- Is any surgery planned or are you currently aware that you need to seek medical advice within the near future? (Other than for medical examination that may arise from this application)?
Broke? How to raise emergency funds
Unfortunate events strike without notice. A sudden job loss, a medical emergency, natural or manmade disaster can leave a dent in your pocket. Have you made any provisions to fund such a situation? Your answer may be a 'yes' or a 'no'. But, as it generally happens, very few of us have sufficient liquid money for emergencies. More often than not, our money is invested for the long-term that comes with a penalty if you had to break it before completion of the tenure. So supposing, you don’t have an emergency corpus then what alternatives can you work out? A few options have been listed below.
Credit cards
Quite a few payments today can be made through credit cards, which is a convenient option. However, if you don’t clear the outstanding amount before the due date, this method will prove very expensive. Also, cash withdrawals on credit cards attract very high interest rates right from the day you withdraw. The charges in either case could work out to as anywhere between 36 to 50 per cent per annum (pa) .
Credit cards
Quite a few payments today can be made through credit cards, which is a convenient option. However, if you don’t clear the outstanding amount before the due date, this method will prove very expensive. Also, cash withdrawals on credit cards attract very high interest rates right from the day you withdraw. The charges in either case could work out to as anywhere between 36 to 50 per cent per annum (pa) .
Therefore, use your credit card only if you are sure to clear off the dues before due date. Ideally, don’t withdraw cash and don’t carry forward any outstanding balance.
Loan against securities
Banks will conveniently lend you money against your shares, mutual funds, insurance policies, gold, etc. So, if you have any such investments, use them to borrow cash. Because these loans are backed by a security, the interest rates on these are quite reasonable, that is between 12 to15 per cent pa.
Selling assets
You could also possibly sell some of your assets if you feel the interest cost is high on other options. For example, you can sell some shares, which you feel are a long-term story and hence are not likely to appreciate significantly in the short run. You could, therefore, always buy them back later within a reasonable price range.
But be careful. In the mad rush to raise money, don’t make a distress sale in a hurry. A good asset once sold may be very difficult to buyback.
Personal loans
If you don’t have any securities to offer to banks for mortgage or sell any assets outright, then you can opt for the more expensive -- personal Loans. These could cost you between 17 to 20 per cent pa. Being quite expensive vis-à-vis other options (apart from the credit card), personal loans should be availed only as a last resort.
Advance against salary
If the problem is a temporary one, you could also consider taking an advance against your salary from your employer. But make sure that the lower salary amount that you will receive later, should not affect your other payments in the future. It goes without saying that your company should haveg a policy to give in advance against the salary.
Borrow from friends or relatives
This may be a good option; in this case you could get money at a very reasonable rate of interest (maybe even interest-free) without any cumbersome procedure or paperwork. Further, you could also possibly get a lot more flexibility in repaying the amount. However, depending on the kind of relationship that you share with your friends and relatives, this could either be a very easy option or a difficult one.
There are quite a few options available to raise money, urgently. Hence it would be prudent if you could think calmly and analyse as to which options would give you the money both quickly and cheaply. If you act in a hurry, you may only be adding to your misery. If possible, seek proper guidance.
B-I-G salary, S-M-A-L-L bank balance!
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Earning a six to seven digit salary has become a fairly common thing these days. In fact, today, what youngsters earn in one or two years is perhaps more than what their parents earned in decades. But if you talk about their bank balance, at the end of the month, it's zilch!Yes, people are spending lavishly. No harm in that. But it makes sense only if you don’t go overboard. We need to ask ourselves a very important question: are we wasting money?
Some expenses are a must, but wasting money, which eventually becomes a habit, is bad. In fact, there’s a thin line separating ‘spending’ and ‘splurging’. You admire Bill Gates, Warren Buffett, Narayana Murthy, Azim Premji, and so on and so forth. But do you follow their spending habits? Here are some examples of unscrupulous spending acts.
High-end gizmos
Flashing a trendy phone has become more of a status symbol than anything else. A simple phone does the same basic function as any other high-end, multiple features-enabled phone would.
And I can bet that most of you don't even use 25 per cent of the features available. As for the rest, you may use them occasionally or possibly, never. This means that you have wasted money on something which you don’t need or even use. Also, given the fast rate at which you change products, you may anyway have to replace it sooner than later. For example, when your parents bought a television or VCR, they used it for decades! But a phone you pay Rs 15,000 for, may not keep you interested for long.And when you intend to sell it, it wouldn't fetch more than Rs 2,000 or 3,000! It’s a huge loss. Had you bought a low-cost phone, not only would it have saved money but also served the same purpose. It's the same story with DVD players, laptops and iPods. So, the next time you decide to buy a gadget, you know what to do.
Brand-conscious?
A good pair of branded jeans would cost you anywhere between Rs 4,000 to 7,000. A pair of Nike shoes would cost you Rs 3,000 to 5,000.
If you only buy branded wear, think again. You can buy the same quality product for less than even half the price. Of course, you won’t get the label or designer packaging.
Fancy restaurants
Try and recollect how many times your parents used to go out for dinners. Maybe once a month? How many times do you go? Probably, once or twice a week! Cut out three to four such dinners and you save upto Rs 5,000 every month.
As the saying goes, too much of anything is bad, and this applies here as well. Not only does it mean that more money goes to waste, but in the long run your lavish spending can have a serious impact on your health, too!
Try these simple strategies, and you will be pleasantly surprised to see a huge bank balance very soon. And don't forget the additional savings, when cut down on using your credit cards!
Some expenses are a must, but wasting money, which eventually becomes a habit, is bad. In fact, there’s a thin line separating ‘spending’ and ‘splurging’. You admire Bill Gates, Warren Buffett, Narayana Murthy, Azim Premji, and so on and so forth. But do you follow their spending habits? Here are some examples of unscrupulous spending acts.
High-end gizmos
Flashing a trendy phone has become more of a status symbol than anything else. A simple phone does the same basic function as any other high-end, multiple features-enabled phone would.
And I can bet that most of you don't even use 25 per cent of the features available. As for the rest, you may use them occasionally or possibly, never. This means that you have wasted money on something which you don’t need or even use. Also, given the fast rate at which you change products, you may anyway have to replace it sooner than later. For example, when your parents bought a television or VCR, they used it for decades! But a phone you pay Rs 15,000 for, may not keep you interested for long.And when you intend to sell it, it wouldn't fetch more than Rs 2,000 or 3,000! It’s a huge loss. Had you bought a low-cost phone, not only would it have saved money but also served the same purpose. It's the same story with DVD players, laptops and iPods. So, the next time you decide to buy a gadget, you know what to do.
Brand-conscious?
A good pair of branded jeans would cost you anywhere between Rs 4,000 to 7,000. A pair of Nike shoes would cost you Rs 3,000 to 5,000.
If you only buy branded wear, think again. You can buy the same quality product for less than even half the price. Of course, you won’t get the label or designer packaging.
Fancy restaurants
Try and recollect how many times your parents used to go out for dinners. Maybe once a month? How many times do you go? Probably, once or twice a week! Cut out three to four such dinners and you save upto Rs 5,000 every month.
As the saying goes, too much of anything is bad, and this applies here as well. Not only does it mean that more money goes to waste, but in the long run your lavish spending can have a serious impact on your health, too!
Try these simple strategies, and you will be pleasantly surprised to see a huge bank balance very soon. And don't forget the additional savings, when cut down on using your credit cards!
Sunday, February 10, 2008
Marriage has Fringe Benefits too !!!
I find that generally investors fail to plan and structure their investments and taxes optimally, not because of negligence or a lack of inclination. It is more to do with the fact that one’s work keeps oneself so busy and preoccupied that financial planning becomes an exercise that is forever postponed to next week. Then before you blink March arrives….. cursing under your breath, you make an appointment with the CA. He is doing the same as he knows you are not going to provide him with all required paperwork. Some last minute, convenient tax saving investments are done and a solemn resolution is made that next year is going to be different.
Well, next year is indeed here and its time to act upon your resolution. The trick is to start early and take the necessary action step by step. Financial planning is at all times a process and not a one time, sporadic exercise. The following are some pointers to help you along the way.
Well begun is half doneThat you are reading this with interest (and intention hopefully) is in itself the big thing. Since you are starting early, you have time on your side. And believe me, time is a great ally. Slowly and surely, act upon these pointers (whichever is applicable to you) and you won’t need your CA’s appointment in March ’08.
The following, in my experience, is a list, of aspects largely neglected by most investors.
Use the Fringe Benefits of Marriage! In sickness and in health…..and in paying taxes too!The wedding vows are done, the honeymoon is over and reality has begun! I should know, I have been married ten years now. However, I did discover a silver lining! Marriage helps in reducing taxes substantially!But first some ground work has to be done. Have separate joint accounts, one for husband and wife and the other for wife and husband, even if one of them is not assessed for income tax. This may sound trivial but actually is of great importance for proper tax planning. This is especially important if you have or planning to buy a house on mortgage and benefit from the tax breaks.
Loan to Spouse
Did you know?
If your wife is a home maker, you can give her a loan to make investments. She earns interest on the investments and pays you interest on the loan. While you won't have to pay tax on the income, the money remains in the family!
You are in the highest tax bracket and she doesn’t have taxable income. (For all you ladies there, I am not chauvinistic, its just for writing convenience. The situation could be reverse too and the same principle would apply)
Anyway, it is vital to start a tax file in her name. The idea is that she starts earning income up to Rs. 1.45 lakh (Rs. 1.10 lakh for males). This income being below the tax threshold, will not be taxable. You ask how is a miracle possible that your wife starts earning so much overnight? She doesn’t. You transfer money to her which you would have otherwise invested in your name. If you earn it, you pay tax @33%. If she earns it, its gonna be tax-free!
But there is a glitch. You cannot transfer money by means of giving her a gift. The problem is that income on such gifted amount will be anyway clubbed in your hands for tax purposes. How do you work around this situation? Well, give her a loan! Though an interest free loan is technically possible, it is better to have an arm’s length contract by charging a nominal rate of interest (say savings bank rate). At a rate of 8% p.a., this way you can make income on over Rs. 15 lakhs of capital tax-free! Of course, the brownie points that you will score with her is an additional advantage!
Housing Finance
If you take a joint home loan, each of you gets the benefit of interest deduction of Rs 1.5 lakh
Marriage has benefits even when buying a house. Are you planning to buy a house anytime? Then, even if you are Mr. Deep Pocket, it is better to opt for housing finance. Tax breaks are available only on borrowed funds and not on the use of your own moolah. Moreover, in most cases, you will find that the direct cost of borrowing is much lesser than the tax saved especially now with the income tax laws offering tax breaks of Rs. 2.5 lakh on combined interest and principal payments.
Like I said, if you are buying a house, it helps if you are married. Real estate can be co-owned. Buy the property with both having an equal share. This way she cannot throw you out of the house (half of it is yours remember). But that’s not my point.
The loan should also be taken equally and the interest and principal payments for the same should be made separately by each from their respective bank account. If the above is carried out, each is entitled to an interest deduction of up to Rs. 1.5 lakh under Sec. 24 and a principal deduction of Rs. 1 lakh under Sec. 80C. So totally between the both of you, up to Rs. 5 lakh of income will escape tax!
Makes you wonder why can we marry only one?
Gift to Minor Children
The wife is taken care of, can kids be far behind? If you have any minor children --- congrats! You have just made some additional capital tax-free. See, you can earn an income of Rs. 1,500 for each child totally tax-free. So say, you have two children…that makes it Rs. 3,000. Capitalise this by say 7% and you have just made income on over Rs. 40,000 totally tax-free.
Mediclaim
Mediclaim is a must for all, taxpayers or otherwise, rich or poor, young or old, in view of the high cost of hospitalisation. If you haven’t bought a Mediclaim policy so far, do so NOW! There is a tax break of Rs. 10,000 available, but that is not the point. Mediclaim is for the good of you and your family members --- the tax cut is just an added benefit.
Public Provident Fund
In the absence of government social security, a regular PPF investment works like a safety net for the later years. This is especially true in the case of the self-employed who do not have a company provident fund to fall back upon. With the interest rates as they are currently, the 8% tax-free interest of PPF is super! I know, equity funds beckon left, right and center --- but hey, we are talking just Rs. 70,000 a year here. Just do it!
Create wealth --- not capital.
I may be addressing a minority here, but they are out there. I am referring to people who shy away from equity on account of the perceived risk. Do not reject equity-based schemes of MFs totally.
It is next to impossible to build wealth without equity exposure. Note that I use the word “wealth” and not capital. Wealth is when your capital brings a smile to your face. And believe me, saving a part of your salary in FDs is not going to do that.
However, with equity one can get very good rewards but the possibility of losing one’s shirt cannot be lost sight of. So do invest but with your shirt on!
If you are a trader, remember, Sec. 88E allows you a set-off of the Securities Transaction Tax against your trading profits. Arrive at your taxes only after claiming this set-off.
Tedious TDS
Last but not the least the most important thing to do is to collate your TDS receipts. Such TDS operates like advance tax already paid i.e. from your final tax liability, you have to pay only such amount that is over and above the tax already deducted. Do this as the year goes along. Most leave this exercise towards the end of the year leading to huge inconvenience and short counting.
To conclude.
You will appreciate that the above-mentioned points are really commonsensical and do not need much of one’s time and effort to put into practice. However, these baby steps have a way of adding up and sometimes make all the difference between financial health or the lack of it.
Well, next year is indeed here and its time to act upon your resolution. The trick is to start early and take the necessary action step by step. Financial planning is at all times a process and not a one time, sporadic exercise. The following are some pointers to help you along the way.
Well begun is half doneThat you are reading this with interest (and intention hopefully) is in itself the big thing. Since you are starting early, you have time on your side. And believe me, time is a great ally. Slowly and surely, act upon these pointers (whichever is applicable to you) and you won’t need your CA’s appointment in March ’08.
The following, in my experience, is a list, of aspects largely neglected by most investors.
Use the Fringe Benefits of Marriage! In sickness and in health…..and in paying taxes too!The wedding vows are done, the honeymoon is over and reality has begun! I should know, I have been married ten years now. However, I did discover a silver lining! Marriage helps in reducing taxes substantially!But first some ground work has to be done. Have separate joint accounts, one for husband and wife and the other for wife and husband, even if one of them is not assessed for income tax. This may sound trivial but actually is of great importance for proper tax planning. This is especially important if you have or planning to buy a house on mortgage and benefit from the tax breaks.
Loan to Spouse
Did you know?
If your wife is a home maker, you can give her a loan to make investments. She earns interest on the investments and pays you interest on the loan. While you won't have to pay tax on the income, the money remains in the family!
You are in the highest tax bracket and she doesn’t have taxable income. (For all you ladies there, I am not chauvinistic, its just for writing convenience. The situation could be reverse too and the same principle would apply)
Anyway, it is vital to start a tax file in her name. The idea is that she starts earning income up to Rs. 1.45 lakh (Rs. 1.10 lakh for males). This income being below the tax threshold, will not be taxable. You ask how is a miracle possible that your wife starts earning so much overnight? She doesn’t. You transfer money to her which you would have otherwise invested in your name. If you earn it, you pay tax @33%. If she earns it, its gonna be tax-free!
But there is a glitch. You cannot transfer money by means of giving her a gift. The problem is that income on such gifted amount will be anyway clubbed in your hands for tax purposes. How do you work around this situation? Well, give her a loan! Though an interest free loan is technically possible, it is better to have an arm’s length contract by charging a nominal rate of interest (say savings bank rate). At a rate of 8% p.a., this way you can make income on over Rs. 15 lakhs of capital tax-free! Of course, the brownie points that you will score with her is an additional advantage!
Housing Finance
If you take a joint home loan, each of you gets the benefit of interest deduction of Rs 1.5 lakh
Marriage has benefits even when buying a house. Are you planning to buy a house anytime? Then, even if you are Mr. Deep Pocket, it is better to opt for housing finance. Tax breaks are available only on borrowed funds and not on the use of your own moolah. Moreover, in most cases, you will find that the direct cost of borrowing is much lesser than the tax saved especially now with the income tax laws offering tax breaks of Rs. 2.5 lakh on combined interest and principal payments.
Like I said, if you are buying a house, it helps if you are married. Real estate can be co-owned. Buy the property with both having an equal share. This way she cannot throw you out of the house (half of it is yours remember). But that’s not my point.
The loan should also be taken equally and the interest and principal payments for the same should be made separately by each from their respective bank account. If the above is carried out, each is entitled to an interest deduction of up to Rs. 1.5 lakh under Sec. 24 and a principal deduction of Rs. 1 lakh under Sec. 80C. So totally between the both of you, up to Rs. 5 lakh of income will escape tax!
Makes you wonder why can we marry only one?
Gift to Minor Children
The wife is taken care of, can kids be far behind? If you have any minor children --- congrats! You have just made some additional capital tax-free. See, you can earn an income of Rs. 1,500 for each child totally tax-free. So say, you have two children…that makes it Rs. 3,000. Capitalise this by say 7% and you have just made income on over Rs. 40,000 totally tax-free.
Mediclaim
Mediclaim is a must for all, taxpayers or otherwise, rich or poor, young or old, in view of the high cost of hospitalisation. If you haven’t bought a Mediclaim policy so far, do so NOW! There is a tax break of Rs. 10,000 available, but that is not the point. Mediclaim is for the good of you and your family members --- the tax cut is just an added benefit.
Public Provident Fund
In the absence of government social security, a regular PPF investment works like a safety net for the later years. This is especially true in the case of the self-employed who do not have a company provident fund to fall back upon. With the interest rates as they are currently, the 8% tax-free interest of PPF is super! I know, equity funds beckon left, right and center --- but hey, we are talking just Rs. 70,000 a year here. Just do it!
Create wealth --- not capital.
I may be addressing a minority here, but they are out there. I am referring to people who shy away from equity on account of the perceived risk. Do not reject equity-based schemes of MFs totally.
It is next to impossible to build wealth without equity exposure. Note that I use the word “wealth” and not capital. Wealth is when your capital brings a smile to your face. And believe me, saving a part of your salary in FDs is not going to do that.
However, with equity one can get very good rewards but the possibility of losing one’s shirt cannot be lost sight of. So do invest but with your shirt on!
If you are a trader, remember, Sec. 88E allows you a set-off of the Securities Transaction Tax against your trading profits. Arrive at your taxes only after claiming this set-off.
Tedious TDS
Last but not the least the most important thing to do is to collate your TDS receipts. Such TDS operates like advance tax already paid i.e. from your final tax liability, you have to pay only such amount that is over and above the tax already deducted. Do this as the year goes along. Most leave this exercise towards the end of the year leading to huge inconvenience and short counting.
To conclude.
You will appreciate that the above-mentioned points are really commonsensical and do not need much of one’s time and effort to put into practice. However, these baby steps have a way of adding up and sometimes make all the difference between financial health or the lack of it.
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