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.
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