12/15/2015

TheEconomicTimes
Title:5LEARNINGSFORALLTIMES
Author:
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ArticleDate:12/14/2015
Thesefinancialtenetsshallneverchangeorbecomeirrelevant.Followthemifyouwanttoprotectyourfinancesagainstuncertainty.
HAVEAPLAN,BERICH
Thisis,perhaps,onevirtuethatcanneutralisetheimpactofvariousfinancialsins.Aplanactsasaguidethroughyourfinancialjourneyand,evenifdomesticandglobal
upheavalsdentyourinvestments,itwillhelpyougetbackontrack.Atthemacrolevel,planningaffectseveryaspectofpersonalfinance,beittaxation,insuranceor
achievementofgoals.Itcancutlosses,enhancegains,andavoidthepainandpanicofafinancialorlifestagecrisis.
Atanotherlevel,aplanisasimplematteroflistingoutyourneedsandwants,anddeployingthemoneyinrightavenuessothatyouhaveitwhenyouneedit.Asafirst
step,calculateyourexistingworthandidentifythegoalsforwhichyouwillrequiremoneyinthefuture.Calculatetheexactamountrequiredforeachgoalafterfactoring
ininflationandthetimehorizoninwhichyouwantit.Findoutyourrisktakingabilityandthenpicktheinstrumentsyouwanttoinvestin(assetallocation).Linkyour
investmentstogoalsandyouwon'thavetoscroungearoundformoneywhenyouneedit.
Buildaplantheminuteyouareemployedbecauseyoucaninvestwithoutstrainingyourfinancesandwithouttheburdenofresponsibilities.Moreimportantly,itwill
helpyougainfromthepowerofcompounding.Soifyouwakeuptotheneedofaretirementkittyat40,you'relikelytosavemuchlessthanifyoustartedat25(see
graphic).
Itislikelythatyourplanningwillgoforatossinamarketcollapselikethatof2008,butwilltypicallystandyouingoodsteadthroughmostupsanddowns.
SECUREYOURFAMILY&FINANCES
Mostpeoplearesointentoninvestingandbuildingassetsthattheyforgettocovertheirrisks.Sinceit'scrucialtosecureyourfamilyandfinancesbycreatinganadequate
insuranceportfolio,thisisthesecondconstantthatdoesnotchangewithtime.
Amajorityofthepeoplebuyinsurancetosavetaxandasaninvestment,withlifeinsurancethesecondmostfavouredinvestmentdestinationafterfixeddeposits,
accountingfor25%ofthewealthofsmallinvestors.However,it'simportantthatyoudon'tmixyourinsuranceandinvesments.
Thebaseofyourinsurancepyramidshouldcomprisepureprotectionplans.Thesecovertheriskofdeath(termplans),healthissues(medicalplans)andaccidents
(accidentdisabilitycovers)(seegraphic).Theamountofcoveryoutake,beitlifeorhealthwilldependonyourlifestage,income,dependantsandrequirements.
Next,considerinsurancepoliciesthatcanhelpyoureachyourgoals.Theseincludetraditional(endowment)andchildplans,andfinally,buyplansthatcanassistyouin
creatingwealth(Ulips).Theotherimportantinsuranceplansthatyoushouoldbuyarethosethatcoverrealestateandhouseholdcontent.Thesearequiteinexpensive,
withtheessentialcoverscostingyoulessthan`2,000ayear.
NEVERIGNORETAXES
muchlikedeath,taxeswillnevergoaway.
Whilerulesandslabsmaychangefromtimetotime,taxationitselfwon't.Infact,itaffectseveryaspectofyourfinances,fromincomeandallowancestoinvestmentsas
wellastheassetsyoubuyorsell.So,stopignoringorpushingitaway.Lookatitasawayofreducingyourlossesandincreasingyourgains.Takethehelpofaplanner
ortaxprofessionalifyouneed,butstartontime.Splititintothreesectionstaxsavinginvestments(deductionsexemptions),taxpaymentandfilingofreturns.Makea
calendarforeachbecauseprocrastinatingwillnotonlyresultinconfusion,butalsolossesandpenalties.
Planyourtaxsavinginvestmentsatthebeginningofthefinancialyearbycalculatinghowtomaximiseexemptionsanddeductionsundervarioussections.Soifyouare
payingthetuitionfeefortwochildren,investinginthePPF,andhavingyourEPFdeductedfromthesalary,itislikelythatyouwillexhaustyourSection80Climitof
`1.5lakhandwon'tneedtorushintothelastminutepurchaseofanendowmentplanorUlipthatyoudon'tneed.
GothroughthelistofotherexemptionsanddeductionsbesidesSection80C,suchasthoseunderSection80D(healthinsurancepremium)ordonationsandcharity
(Section80G)toknowhowmuchmoreyoucansave.
Makesurethatyouhaveclaimedthetaxexemptreimbursements,suchasmedicalorconveyance,fromyouremployerbysubmittingbillsandproofontime.Certain
reimbursementslikeLTAcannotbeclaimedwhilefilingreturnsifyouforgettotakethemontime.
Also,beclearaboutthewayyourinvestmentsaretaxedsothatyoucanbuyandsellassetsbypayingminimalorzerotax,andcanoffsetyourlossesagainstthegainsina
particularyear.
Next,remembertomaketaxpaymentsontimebycheckingthedeadlines.Forinstance,anindividualassessee(otherthancorporates)needstopayadvancetaxinthree
tranchesby15September,15Decemberand15Marcheachyear.Ifyoufailtodoso,youwillbepenalised1%simpleinterestonthedueamountpermonth.
Finally,setyourselfanalarmorremindertofilethereturntwomonthbeforethedeadlinetoavoidthechaosandcrashingwebsiteofthelastfewhours.Ofcourse,you
candosolateraswellifyouhavealreadypaidyourtaxes,butwhywait?
MONITORYOURINVESTMENTS
Creatingaplanandbuildingaportfoliomaygotowasteifyoudonotmonitoritperiodically.Areviewisessentialtomarktheprogresstowardsyourgoalsandtake
correctivemeasures,ifrequired.Ascriticalasamedicalcheckup,youshouldmonitortheinvestmentsonaquarterlybasisforshorttermgoals,andannuallyforlong
termgoals.Whilesomepeopledisplayundueexuberance,checkingtwiceaweekormore,itisprudenttodoitatlongerintervals.
Inchangingmarketconditions,animportantthingtoanalyseistheassetallocation,whichcouldhavechangedandwillneedtoberebalanced.Sellingsomethingthatis
doingwellandbuyingintoalosingassetclassmightappearcounterintuitive,butinthemediumandlongterm,aportfoliobasedonassetallocationhasabetterchance
ofoutperformingthemarket.Next,onemustlookatindividualperformancesofinvestmentsandremovethefundsorstocksthathavenotperformedconsistentlyfor
morethanfourquarters.
Reviewingportfolioshasbeenmadeeasybyonlineportfoliotrackersandmoneymanagementwebsites.Valueresearchonline.com,forinstance,offersafreeportfolio
tracker,whichanalysesassetallocationandevencalculatesyourshortandlongtermcapitalgains.
BEAWARE,STAYALERT
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Themorethingschange,themorethisruleholds.Agoodfinancialplannotonlymeansinvestingintherightavenuesandmonitoringtheplan'sprogress,butalso
ensuringthatyoudon'tloseyourhardearnedmoneytofrauds,identitytheftandsheerignorance.Financialknowledgeandcautioncantranslateintohighergainsand
fewerlossesforyouinanymarketcondition.Youcanstartbytakingnoteofthevariousfeesandchargesthatarestrainingyourbudgetandreducingyoursavings.
Whetherit'screditcardusageortravelplanning,bankingorrealtytransations,makesureyoudon'tgiveawaymorethanyoushould.
Next,ensureyoudon'tinvestinaninstrumentyouknownothingabout,especiallywhenitcomestostockinvestments.Mostexpertsopinethatmutualfundsareabetter
andmoresecurewaytoinvestinequitybecauseyourmoneyisbeinghandledbyseasonedprofessionals.Similarly,itisessentialtostayabreastofthenewtaxrulesand
investingschemestomaximiseyoursavings.Ifyoudonotknowthevarioustaxdeductionsyoucanavailof,youarewhittlingawayyoursavings,evenincurringlosses
thatyoucouldhavesetoffagainstyourgains.
Missellingisanotherpotholethatcanbeavoidedifyouarewellinformedaboutfinancialproducts,beitinsuranceorbankingtransactions.Beespeciallywaryof
brokersandagentswhoarekeentotakecontrolofyourfinances,offertofillupformswithoutyourpresence,realestatediscountsthatseemtoogoodtobetrueormarket
returnsthatareincrediblyhigh.
Creditcardfraudandonlineidentitytheftaretwootherareasthatcanresultinmassivemonetarylosses.Practisecautionwhileconductingecommercetransactionsandbe
wellversedintheproceduresthatneedstobefollowedintheeventthatyouarevictimised.
Beingwellinformedandpractisingcautionareasgoodasaninsuranceforyourfinancesasthelifeandhealthcoversthatprovideprotectiontoyourandfamilyand
investments.

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