Beginning of the financial year is the best time to get your money acts together.
Well begun may be half done in many things. For your financial well-being however well begun is a big step towards wealth. A few suggestions for us to consider, as we look at the financial year 2017-18 that is just days away.
1. Get a grip on the future. Planning the needs and goals of our future helps us get a grip on the task at hand, and the way to get there. Our needs are to educate our children, manage a decent current lifestyle, own a home and fund a comfortable retirement. Our desires would be a nice car, annual vacation, some gadgets and assets that provide a feeling of luxury. Write down the goals and the timeline – it is good to know when we would like to have what we desire.
Next, write down the investment out of our current income we are willing to make for the goals to be met. A written plan helps focus on getting on the road to achieving our goals. A Certified Financial Planner is qualified to guide you on this life plan.
2. Take advantage of the discounts on your investments. We common people look to the budget with an eye on what the Finance Minister has for us. The biggest items that impact our lives are not the small increase or decrease in tax rates on cars or cheese, but the tax deductions offered. This is a time to budget our investments for the next year, in the same manner as we prepare our household budget. Plan to get every possible tax deduction from investments of Rs. 1.5 lakh – under Section 80C look especially at the Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS of Mutual Funds), Sukanya Samriddhi Scheme for those with your daughters, Senior Citizens Savings Scheme for those above 60 years. Life insurance is necessary if you have dependants, but buy that without considering the tax benefit so that you maximise your investments for the future.
The tax benefit is actually a discount that you get on your investment. One earns Rs. 8 on every Rs. 100 invested, but after discount for a person in 30% tax bracket the Rs. 8 is earned on Rs. 65 (considering the surcharges) and is not an 8% interest rate, but over 12%. And on maturity you get the entire Rs. 100 back!
3. Take the discount on your pension fund too. There is a separate deduction for Rs. 50,000 for investment in the National Pension Scheme (NPS). An advantage is that this money cannot be easily drawn before the age of 60. This is a solid way to protect some of our desired lifestyle in retirement.
4. Prepare a budget. This would be a good New Financial Year resolution. Better than the resolution to give up smoking from January 1, which was tempting to break by January 15, a budget is prepared for the year, broken up into 12 months. We do have special months like Diwali and Christmas that absorb more money than others, vacation months and time for school fees at the beginning of each academic year. Pay our future goals account before spending – that is, invest a percentage of monthly income, preferably about 40% in normal months and 25% in the expensive months. Let the investment be according to our Financial Plan and made as soon as the salary is credited to the bank account.
5. Protect whatever is precious to us. Our dreams start with our families. Education and a great career for our children, comfortable home, decent lifestyle and a retirement that justifies a life of hard work. These dreams can turn to dust in a moment – a road accident, health shock, a cooking gas cylinder burst can put us from a happy position to a downward spinning spiral. Your Financial Planner can help calculate how much insurance can protect the children’s education, pay up the home loan and support your spouse’s retirement. Take medical insurance and personal accident insurance. Do not drive the vehicle without insurance. And consider a home owner’s policy. The occasional shocks of life will come along, less often as happiness. Insurance is a small cost to pay for reducing the impact of serious shocks.
The writer is CEO & Founder of Right Horizons.