So the economy is at its worst. Inflation is up, salaries are not going up and it’s difficult to meet expenses or is it that we have to reduce our costs till we get some stability.
Wasting money is not only detrimental to your overall financial well being, it's irresponsible. Your house and living expenses make up the major portion of your financial plan. Just like spending cash unnecessarily, paying for expenses that aren't necessary is just wasting money.
With so much of uncertainty, its best to try and reduce our expenses. This way would still be able to meet our financial plan. Here are a few tips to reduce costs.
Avoid impulse spending
The first thing we do while preparing a financial plan is preparing a budget. So why not stick to the budget and avoid impulsive spending. Yes, we must have kept some amount of money aside for contingencies, but this would be time to keep our contingencies to the minimum. This is the best time to check our actual expenses more regularly against the budget.
If you have a habit of paying by credit card, stop. Use cash instead, this helps in keeping a check on impulsive buying. Withdraw the exact amount for your weekly budgeted expenses. Make sure that your expenses are met from your income and not loans. Charging expenses on a credit card and then paying only the minimum amount is nothing short of taking a loan from the financial institution. The interest rate on credit card loans is the highest.
Have more home made food.
While preparing the financial budget we must have made created a head for eating outside. This was fine when the economy was good, but now is the time to have a re-look at the budget. If you have been eating outside for lunch, start carrying Tiffin. If you must eat out try eating going to a more mid sized restaurant, this will help reduce costs. Have a picnic dinner, pack food at home and go to a beach or park and have your dinner, this is much cheaper. Another option is have a movie dinner in the house, hire a DVD and have the family movie experience in the house. Make it special. Cook food from the scratch, instead of having ready to eat or half made food, its cheaper. Kids like Pizza’s and burger’s, why not make them at home?
Stop unwanted phone features
Features like call waiting, caller ID, return call service, long distance packages, etc, etc, etc. are extra expenses. Some we might require, but others are just expenses. If incoming calls are free, caller ID is just and additional expense. If your phone as an answering machine, then important persons or people you know would leave a message. If they did not, it was not important.
Minimize costs on essential household expenses.
Try using the air conditioner only when it is really essential, than just turning it on as a routine. This will help reduce the electricity bill.
Review, remove, and reduce expenses to stop wasting money and trim your household budget. Analyze each household expense for necessity and the costs associated with it. Make an effort to reduce each expense to the minimum amount possible, while still meeting your family's needs. Before you know it you'll be saving hundreds, if not thousands, on your household budget expenses each year.
Laundry Expenses
Yes, you do not send your clothes to the laundry unless you get the hard to remove stains. But before you do that why don’t you try some household tips viz. bicarbonate of soda, distilled vinegar and lemon juice solutions can pretty much clean anything for a fraction of the cost.
Holidays
We definitely need holidays, now we can’t say stay in the house all the time. We could get mad. It will cost us a small fortune. I'm talking about holidays of course. But there are ways to have a cheap break.
Many of us, surprisingly, haven't explored our local areas in great depth. Try going to these local areas, this would come cheaper. Make an itinerary of different activities to do each day, pack a picnic and go. As you don't have to pay for accommodation it can be surprisingly cheap, just make sure you don't ruin the fun by doing chores when you get home. Ensure that it is really a holiday
Monday, March 30, 2009
Sunday, March 22, 2009
New Pension Scheme
In the budget of for 2003-04 the government announced a new pension scheme (NPS) based on defined contribution, which would be borne equally by the employee and the government. Defined contribution means monthly contribution of 10 percent of the salary and DA to be paid by the employee and equally matched by the Central Government. The contribution by the central government would only be in respect of government employees.
The pension scheme would be flexible allowing the benefits to continue even in case of change of employment. On change of employment the benefits would be transferred to an individual pension account.
The pension funds would be supervised by Pension Fund Regulatory and Development Authority (PFRDA).
All new entrants joining the central services would compulsorily be part of the new pension scheme. NPS would be available to all individuals on a voluntary basis from the date announced by PFRDA.
The NPS will use the existing network of bank branches and post offices etc. to collect contributions and interact with participants allowing transfer of the benefits in case of change of employment and offer a basket of pension choices.
The contributions would be of 2 types
• Tier-I account
• Tier –II account
Tier-I account – This account based on defined contribution which are non-withdrawable, till eligible for withdrawal. Withdrawals from this account would be taxable. Own as well as government contribution would form part of section 80C deduction.
Individuals can normally exit at or after age 60 years. At exit the individual would mandatorily be required to invest 40 percent of pension wealth to purchase an annuity. In case of Government employees the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. The individual would receive a lump-sum of the remaining pension wealth, which he would be free to utilize in any manner. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, the mandatory annuitization would be 80% of the pension wealth.
Tier-II account – Contribution to this account is voluntary. There would be no government contribution. The amount in this account can be withdrawn anytime and there would be no tax implication. Contribution to this account is not eligible for 80C deduction.
Both the type of accounts would be managed in the same manner. They will have a central record keeping and accounting (CRA) infrastructure and several pension fund managers (PFMs) to offer different categories of schemes.
The participating entities (PFMs and CRA) would give out easily understood information about past performance, so that the individual would able to make informed choices about which scheme to choose.
This would allow a subscriber to monitor his/her investments and returns under NPS, the choice of Pension Fund Manager and the investment option would also rest with the subscriber. The design allows the subscriber to switch his/her investment options as well as pension funds. The facility for seamless portability and switch between PFMs is designed to enable subscribers to maintain a single pension account throughout their saving period.
Pension fund managers would be free to make investment in international markets subject to regulatory restrictions and oversight in this regard.
The scheme was slated to be launched on April 1, 2009. PFRDA had started marketing of the scheme through print media on March 2. However, with the election code of conduct being announced, the pension regulator decided to put off the campaign.
The pension scheme would be flexible allowing the benefits to continue even in case of change of employment. On change of employment the benefits would be transferred to an individual pension account.
The pension funds would be supervised by Pension Fund Regulatory and Development Authority (PFRDA).
All new entrants joining the central services would compulsorily be part of the new pension scheme. NPS would be available to all individuals on a voluntary basis from the date announced by PFRDA.
The NPS will use the existing network of bank branches and post offices etc. to collect contributions and interact with participants allowing transfer of the benefits in case of change of employment and offer a basket of pension choices.
The contributions would be of 2 types
• Tier-I account
• Tier –II account
Tier-I account – This account based on defined contribution which are non-withdrawable, till eligible for withdrawal. Withdrawals from this account would be taxable. Own as well as government contribution would form part of section 80C deduction.
Individuals can normally exit at or after age 60 years. At exit the individual would mandatorily be required to invest 40 percent of pension wealth to purchase an annuity. In case of Government employees the annuity should provide for pension for the lifetime of the employee and his dependent parents and his spouse at the time of retirement. The individual would receive a lump-sum of the remaining pension wealth, which he would be free to utilize in any manner. Individuals would have the flexibility to leave the pension system prior to age 60. However, in this case, the mandatory annuitization would be 80% of the pension wealth.
Tier-II account – Contribution to this account is voluntary. There would be no government contribution. The amount in this account can be withdrawn anytime and there would be no tax implication. Contribution to this account is not eligible for 80C deduction.
Both the type of accounts would be managed in the same manner. They will have a central record keeping and accounting (CRA) infrastructure and several pension fund managers (PFMs) to offer different categories of schemes.
The participating entities (PFMs and CRA) would give out easily understood information about past performance, so that the individual would able to make informed choices about which scheme to choose.
This would allow a subscriber to monitor his/her investments and returns under NPS, the choice of Pension Fund Manager and the investment option would also rest with the subscriber. The design allows the subscriber to switch his/her investment options as well as pension funds. The facility for seamless portability and switch between PFMs is designed to enable subscribers to maintain a single pension account throughout their saving period.
Pension fund managers would be free to make investment in international markets subject to regulatory restrictions and oversight in this regard.
The scheme was slated to be launched on April 1, 2009. PFRDA had started marketing of the scheme through print media on March 2. However, with the election code of conduct being announced, the pension regulator decided to put off the campaign.
Sunday, March 8, 2009
Tax Planning
March is a time by when you would have already completed your tax planning and investment, but if you have not done it now is the time. Anyway you can go through this article to do your planning for the next financial year as well.
Most people have the tendency to do investment based on what comes their way or what they hear from their friends and families. This helps in saving tax, but does this type of investment meet your long term investment objective? While doing tax planning one should have a look at different investment options in conjunction with your age, needs, goals and risk-appetite.
The 2 main sections we would look at are sections 80C and 80D.
As you are aware, the maximum investment allowed as deduction from Income under section 80C is Rs. 1,00,000/-. Now depending on your income you can decide to make a lump sum investment or do it on a monthly basis. There are many items which are available as deduction under section 80C.
Let’s have a look at some of them:
Employee Provident Fund: Most companies have Employee Provident Fund, where 12% of your basic and DA are deducted as contribution to this fund. In addition to this your employer also contributes and to this fund. The amount contributed by your employer is not added to your income, so you do not pay tax on this income.
The Employee Provident fund helps in building a healthy retirement corpus. You also get an interest on the amount lying in this fund and the interest is tax free. This fund would be operative till you retire.
Public Provident Fund: This is also another way of building your retirement corpus, but this is voluntary. Anyone can open a Public Provident Fund account. The minimum contribution per annum is Rs.500 and maximum Rs.70,000/-. You also get an interest on the amount lying in this fund and the interest is tax free.
The tenure of this fund is 15 years and can be renewed by 5 years each time after that. The best part is withdrawal facility is also available, subject to certain conditions.
Pension Plans: Though this comes under a different section, investment under pension plans comes under the overall limit of Rs. 1,00,000/-
Life Insurance: Premium paid on a life insurance policy is also deductable under section 80C. The premium amount should not exceed 20% of the insured amount. Any return received against an insurance policy is tax free. One should note that insurance and investment are 2 different things and insurance should not be mixed with investment.
Housing Loan: Repayment of principal amount upto Rs. 1,00,000/- is allowed as deduction under this section. In addition interest payment on housing loan upto Rs. 1,50,000/- is allowed as deduction under Income from house property.
Tuition Fees: Whole amount of Tuition fees paid towards your childs education is allowed as deduction.
National Saving Certificate: Investment upto Rs.1,00,000/- is allowed as deduction. lock-in period is 6 years. The interest received is taxable as income from other sources, but since it is locked in, the interest is also allowed as a deduction under section 80C.
Bank Fixed Deposit: Fixed deposit for 5 years or more in a scheduled bank is allowed as a deduction. The interest earned is taxable under Income from Other Sources.
Equity Linked Saving Scheme: Only schemes notified under the income tax act are allowed as deduction. The minimum lock-in period is 3 years. Dividend received is tax free.
IPO of Infrastructure Company: As the name suggests this deduction is only available for purchase of shares of an Infrastructure Company through an IPO. Dividend received is tax free. The lock-in period is 3 years.
Deduction under section 80D
Health Insurance: Premium paid towards health insurance policy is allowed as deduction upto Rs.15,000/-
Having seen the different deduction options, let’s see what options we should look at different stages of your life.
Single: Here we assume that you are in your early stage of your career with not many liabilities. The risk taking appetite is also high. So the suggestion is to put maximum in Equity Linked Saving Scheme. But at the same time it is best to start accumulating your retirement corpus. One should look at Pension plans and Public Provident Funds.
Married without children: Being young, the risk taking appetite is high, but being married one should also try and protect one’s spouse. In addition to Equity Linked saving scheme and building a retirement corpus, one should also look at life insurance policy.
Married with children: At this stage the risk taking appetite is reduced, so the exposure to Equity Linked Saving Scheme should be reduced. People in this age group would definitely be looking for regular income to take care of children’s education, marriage and other expenses.
Increasing exposure to Public Provident Fund would help, since withdrawal is allowed, when needed. The other option is to look at National Saving Certificate and Bank Fixed Deposits. But one should note the interest is taxable. One should also look at increasing the life insurance coverage, since the numbers of persons depending on you have increased.
Pre-retirement: This is the best time to increase exposure to Pension Plans and Public Provident Fund.
Post-retirement: This is the time when a person wants to have a good life style. With the increase in tax breaks and reduction in income, this is the best time to have exposure to National Saving Certificate and Bank Fixed Deposits
Most people have the tendency to do investment based on what comes their way or what they hear from their friends and families. This helps in saving tax, but does this type of investment meet your long term investment objective? While doing tax planning one should have a look at different investment options in conjunction with your age, needs, goals and risk-appetite.
The 2 main sections we would look at are sections 80C and 80D.
As you are aware, the maximum investment allowed as deduction from Income under section 80C is Rs. 1,00,000/-. Now depending on your income you can decide to make a lump sum investment or do it on a monthly basis. There are many items which are available as deduction under section 80C.
Let’s have a look at some of them:
Employee Provident Fund: Most companies have Employee Provident Fund, where 12% of your basic and DA are deducted as contribution to this fund. In addition to this your employer also contributes and to this fund. The amount contributed by your employer is not added to your income, so you do not pay tax on this income.
The Employee Provident fund helps in building a healthy retirement corpus. You also get an interest on the amount lying in this fund and the interest is tax free. This fund would be operative till you retire.
Public Provident Fund: This is also another way of building your retirement corpus, but this is voluntary. Anyone can open a Public Provident Fund account. The minimum contribution per annum is Rs.500 and maximum Rs.70,000/-. You also get an interest on the amount lying in this fund and the interest is tax free.
The tenure of this fund is 15 years and can be renewed by 5 years each time after that. The best part is withdrawal facility is also available, subject to certain conditions.
Pension Plans: Though this comes under a different section, investment under pension plans comes under the overall limit of Rs. 1,00,000/-
Life Insurance: Premium paid on a life insurance policy is also deductable under section 80C. The premium amount should not exceed 20% of the insured amount. Any return received against an insurance policy is tax free. One should note that insurance and investment are 2 different things and insurance should not be mixed with investment.
Housing Loan: Repayment of principal amount upto Rs. 1,00,000/- is allowed as deduction under this section. In addition interest payment on housing loan upto Rs. 1,50,000/- is allowed as deduction under Income from house property.
Tuition Fees: Whole amount of Tuition fees paid towards your childs education is allowed as deduction.
National Saving Certificate: Investment upto Rs.1,00,000/- is allowed as deduction. lock-in period is 6 years. The interest received is taxable as income from other sources, but since it is locked in, the interest is also allowed as a deduction under section 80C.
Bank Fixed Deposit: Fixed deposit for 5 years or more in a scheduled bank is allowed as a deduction. The interest earned is taxable under Income from Other Sources.
Equity Linked Saving Scheme: Only schemes notified under the income tax act are allowed as deduction. The minimum lock-in period is 3 years. Dividend received is tax free.
IPO of Infrastructure Company: As the name suggests this deduction is only available for purchase of shares of an Infrastructure Company through an IPO. Dividend received is tax free. The lock-in period is 3 years.
Deduction under section 80D
Health Insurance: Premium paid towards health insurance policy is allowed as deduction upto Rs.15,000/-
Having seen the different deduction options, let’s see what options we should look at different stages of your life.
Single: Here we assume that you are in your early stage of your career with not many liabilities. The risk taking appetite is also high. So the suggestion is to put maximum in Equity Linked Saving Scheme. But at the same time it is best to start accumulating your retirement corpus. One should look at Pension plans and Public Provident Funds.
Married without children: Being young, the risk taking appetite is high, but being married one should also try and protect one’s spouse. In addition to Equity Linked saving scheme and building a retirement corpus, one should also look at life insurance policy.
Married with children: At this stage the risk taking appetite is reduced, so the exposure to Equity Linked Saving Scheme should be reduced. People in this age group would definitely be looking for regular income to take care of children’s education, marriage and other expenses.
Increasing exposure to Public Provident Fund would help, since withdrawal is allowed, when needed. The other option is to look at National Saving Certificate and Bank Fixed Deposits. But one should note the interest is taxable. One should also look at increasing the life insurance coverage, since the numbers of persons depending on you have increased.
Pre-retirement: This is the best time to increase exposure to Pension Plans and Public Provident Fund.
Post-retirement: This is the time when a person wants to have a good life style. With the increase in tax breaks and reduction in income, this is the best time to have exposure to National Saving Certificate and Bank Fixed Deposits
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