Financial Planning

Financial Planning (32)

We need “Roti, Kapada and Makaan” before thinking about achievement of other financial goals. The key financial goals for families currently are; Children’s education and Retirement corpus. A roof over our head is a basic necessity no doubt, but should we go for owning it or stay in a rented house? If you aspire to own an expensive house, the home loan EMI may make you poor and you may have no money left for other expenses after paying the EMI. It will be difficult to maintain a healthy balance between housing and other critical goals. The factors to consider in buying a house vs renting are;

There is a debate on segregating sales from investment advice.SEBI has proposed that mutual fund distributors cannot give investment advice to buyers and proposed to make it compulsory for mutual fund distributors  who give advice to register as investment advisers. We reproduce the view of Prof Pattabiraman at  IIT-Madras as published in ET wealth on 16th January 2017.

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Steve Jobs said, "People don't know what they want until you show it to them". This applies to conflict of interest. In a recent consultation paper, Sebi proposed that mutual fund distributors should not provide incidental or basic investment advice in respect of mutual fund products and should not call themselves advisers.

Traditionally women are better at managing family’s budget and are more concerned about children’s education and marriage. We find women groups take to streets when prices of vegetables and other essential items increase beyond tolerable levels. Nowadays increasing number of women are opting for career in regular jobs. It provides them opportunity for financial independence. It is high time for women to take control of their finance for the following reasons; 

 (1)   Increasing divorce rates – India is witnessing a surge in divorce rates and therefore entrusting the spouse with financial matters can create money crunch. It is prudent to keep a tab on your monthly investments and determine holdings in your name, so as to avoid financial complications later.

(2)   Time off for raising children – Many expectant mothers wish to take a time off over and above their maternity leave in order to raise their children, but can’t do so due to financial commitments. Hence, a proper planning on creating a ‘time-off’ corpus can help them to do this.

(3)   Daughter as a son – Today, more of the daughters are evolving as sons to their families and thus contribute to the family finances. Women, by participating in financial decisions, can become trendsetters by continuing to be an asset to their own family even after marriage

(4) More life to live- In old age; women largely depend financially on their spouses. But, with life expectancy of women being higher than men, it is advisable to put in place a separate retirement planning for themselves. 

Today, women have more power and earning potential than ever before. They have the ability to sharpen their skills in building wealth and undertake financial planning to achieve their financial goals in life.

1)  Rs 5,000 Rebate for Income upto Rs 5 Lakhs: Rebate increased from Rs.2,000 to Rs. 5,000 for an individual having annual income of up to Rs.5 lakh per annum. Now, such individuals can avail total rebate of Rs.5, 000 in an assessment year.

2) Rs 60,000/- Deduction for House Rent: Deduction amount claimed against rent paid to be increased from 24,000 pa to 60,000 pa under Sec 87A. Not many know about this. Basically this is useful to people staying on rent but do not have HRA as an income component. 

3) Rs 50,000/- add. Tax deduction for home buyers : First time home buyers to get an additional deduction of Rs.50,000 on interest component of EMI. Value of such houses should not exceed Rs50 lakhs and loan Rs35 lakhs. 

Nifty delivered   5% negative in 2015. Expectations gone but hope remains! Real estate prices are moving southward in many cities. Gold prices correcting two year in a row. Deposit rates going down. Banks deducting TDS on interest of all deposits. Current challenge is to earn interest to beat  the inflation rate. With volatility in equity market, aim should be to generate returns above the benchmarks in equity. However for long term investor, equity is the best asset class.

We must educate our children well and help them to settle in their career. We must accumulate adequate retirement corpus to last our life time. Stick to your financial goals.  We suggest visiting the following resolutions in the New Year.

 1. Create an Emergency Fund

Future is uncertain. One may lose job, income may decline or any family member may have to undergo major medical treatment etc. It is advisable to keep sufficient cash either in  Liquid Mutual Fund or Bank to meet three to six months of expenses.

 

Financial Life Planning is a branch of Financial Planning which deals with peace and happiness in life. It aims at creating yogic wealth. As per Maslow’s hierarchy of needs, there are five levels of human needs; Physiological (Food and Water),Safety(Home), Love and belongingness (Family), Self esteem(Professional achievements) and Self actualisation (Passions in life).We need money for fulfilling the  needs for the first two stages i.e physiological and safety but do not need money for the last three stages. We always worry about money and fear for not having enough of it.Fear gives rise to insecurity which again leads to anxiety. This again is the root cause of our greed. In fact most of us  have these emotions and we should not feel bad or guilty about it. Rather we should recognise these emotions before  we aspire for peace and happiness in life.

“Hindus are seekers, not believers ....” thus spoke Sadguru Jaggi Vasudev in an interview to The Ecomonic Times yesterday.He clarified that all those people living in this ancient land below the Himalayas have pursued “search of truth” from the vedic times.
But when it comes to buying of financial products, we have been doing the opposite.We believe our friends,agents, brokers and banks staff without bothering to find out what we are buying and whether it suits our need or not ?By the time we realise the products, be it  insurance or investments, are mismatch to our needs, it is already too late!

Traditionally women are better at managing family’s budget and are more concerned about children’s education and marriage. We find women groups take to streets when prices of vegetables and other essential items increase beyond tolerable levels. Nowadays increasing number of women are opting for career in regular jobs. It provides them opportunity for financial independence. It is high time for women to take control of their finance for the following reasons; 

 (1)   Increasing divorce rates – India is witnessing a surge in divorce rates and therefore entrusting the spouse with financial matters can create money crunch. It is prudent to keep a tab on your monthly investments and determine holdings in your name, so as to avoid financial complications later.

The dream budget is finally announced and some important measures in personal finance area are;

  • Income Tax rate slabs unchanged
  • Health Insurance premium exemption under 80D increased to  Rs25,000/- and for senior citizens to Rs 30,000/-
  • Transport allowance exemption increased from Rs800/- to Rs 1,600/- per month
  • NPS contribution exemption under 80CCD Rs50,000/-
  • Option to employees for either EPF or NPS
  • Wealth Tax abolished

 

“Financial independence is prerequisite for  good  health, emotional security, social security and quest for spiritual peace” thus said Deepak Chopra in his blog recently.

Many have planned for new year vacations but very few plan their personal finance.The irony is that many work hard for 35 years to earn money but rarely do they manage their personal finance properly.As a result,they end up with buying toxic financial products which does not match their needs .By the time they realise their mistake, it is too late.

However you can  pause now, take stock of what you want  to achieve in life , what you have done till 2014 &  lay a  road map  in 2015 with  course correction and  improve your happiness index .Here are some of the areas for your review;

 

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