Why you need to start financial planning early

Posted by Mehul Kothari | Published on 01 Jan 2019
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Why you need to start financial planning early

Why it needs to start early?

Introduction
‘A stitch in time saves nine’ goes a famous saying which stresses on the importance of time. The same holds true for financial planning. Do you know why?
Given its importance, a financial plan is essential for every individual. It helps you in meeting your financial goals in a systematic manner and gives you financial independence. Besides being important, it is advised that financial planning should be started as early as possible. Having a financial plan early in your life is beneficial because of the umpteen benefits you can get from it. If you are wondering what the benefits are, here are some for your knowledge –

• It inculcates a sense of discipline in you
When you start earning, you find various avenues to spend your limited income on. This leads to overspending which eats away your income. You are, thereafter, left with no money to create savings which is bad. When you have a clear cut financial plan early in life you become aware of your future liabilities and goals. You also know the funds required to meet those goals. Having financial goals instils a sense of financial discipline in you. You start saving early to reach the desired corpus and develop a saving habit which lasts your lifetime.

• You can save affordable amounts regularly
When you plan your finances early, you start saving early. When you start saving early you have time on your hands. This time lets you create a substantial corpus by saving little affordable amounts every month. Your investments earn compound interest which, over time, multiplies your savings manifold. If you don’t believe me, see for yourself how the power of compounding works wonders –
The following details are assumed for calculation purposes –


Just by delaying your investments for 10 years, your corpus becomes one-third! Surprising, isn’t it? If you want the same corpus when you start late, your monthly saving should be more than Rs.14, 000 which is more than double of what you are required to save when you start early.
Thus, by having a financial plan early in life you don’t have to stress your earnings and you can create sufficient funds for future.

• You can save more and avoid debts
When you start saving early you get longer investment tenure. As demonstrated above, this longer tenure, coupled with compound interest yields very high returns. Thus, you can create sufficient savings for your life’s goals. When you have good savings you don’t have to take loans or debts to meet your financial liabilities. You can utilize your investments and avoid paying interest payments on loans.

• You can learn from your mistakes
Making mistakes is common. You might make mistakes when you are new to the financial sector. You are learning the ropes and you create a financial plan which, according to you, gives you financial security. However, if your financial plan falls apart, you have a time advantage. You can take rectifying measures and rebuild your financial portfolio. Since you have time on your side, rebuilding another financial plan would not put a dent on your financial goals. You can learn valuable financial lessons from your mistakes and plan your finances for the future more carefully. Thus, early financial planning lets you rebuild your financial portfolio and your mistakes don’t prove financially hazardous.

Conclusion
A financial plan is necessary to handle your finances better. Ideally, you should resort to financial planning when you start earning. However, even if you have been delayed in formulating a financial plan, don’t wait any longer. Start at the earliest and reap the benefits of having a good financial plan to back your goals.

Dislcaimer
Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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How to maximise your tax savings?

Posted by Mehul Kothari | Published on 27 Dec 2018

How to maximise your tax savings?  As tax season approaches, the first question on everyone’s mind is how to save tax. One of the easiest ways to save tax in India is claiming deductions on your income. By following these income tax saving tips, you can end up saving a significant amount of tax.  Here are some ways to save tax in India.   How to save Income Tax in India using deductions:   Deductions are a reduction from your taxable income. There are several provisions of the Income Tax Act which help you reduce taxable income.   Section 80C: This is by far the most popular section. It covers a wide range of investments and expenses that provide you ways to save tax. The deduction is limited to Rs. 1,50,000. Some of the investments you can make to save tax in India under Section 80C are:   Public Provident Fund (PPF) Employee Provident Fund (EPF) Tax saving fixed deposit (FD) Equity Linked Saving Scheme (ELSS) National Savings Certificate (NSC) Senior Citizen Savings Scheme (SCSS) Principal repayment on home loan* Tuition fees for children Stamp duty and registration fees on the purchase of a house Sukanya Samriddhi Yojna (SSY)   Section 80CCC: Investment in an annuity plan by Life Insurance Corporation (LIC) or any other insurer gets a deduction under this section. Together with Section 80C, you can claim a total deduction of Rs. 1,50,000.   Section 80CCD Investment in the National Pension Scheme gets a deduction of Rs. 50,000   Section 80D: The premiums you pay towards health insurance for yourself, spouse and dependent children are tax deductible. If you are under 60, you can claim a maximum deduction of Rs 25,000. If you are a senior citizen, you can claim a deduction of up to Rs 50,000. You can also claim an additional deduction for premiums you are paying towards your parents’ health insurance. If your parents are under 60, you can claim an additional deduction of Rs 25,000. If they are above 60, you can claim Rs 50,000 as a deduction.   Section 80DD/Section 80U: These sections give a deduction for disability either to the person (80U) or for a person dependent on the taxpayer.   Section 80DDB: If any money has been spent on treating specified disabilities, you can get a deduction between Rs. 40,000 to Rs.1,00,000 depending on the age of the person getting treated.   Section 80E: Tax rebate on education loans are only valid up to eight years starting from the year you begin repaying the loan. If your loan tenure exceeds eight years, then you cannot claim a deduction for interest paid beyond the eight years.  Note that if you repay the loan before the eight-year tenure, then tax deduction will be allowed for that period only.   Section 80G: Amounts paid to charitable institutions etc. as donations get a deduction up to a certain limit depending on the charity you donate to.   Section 80GG: -          House rent allowance is part of your salary, and you can claim a deduction for HRA. However, if you pay rent, but do not receive HRA from your employer, you can claim deduction under Section 80GG towards the rent you pay.   Section 80GGA: -          Amounts paid for scientific research and development get a deduction of the amount paid.   Section 80TTA: Interest on savings bank or post office account gets a deduction up to Rs. 10,000. This deduction is allowed on interest earned – From a savings account with a bank, co-operative bank or post office Section 80TTB: Interest on savings and fixed deposit accounts held by senior citizens in a bank, co-operative bank or post office gets a deduction of Rs. 50,000. How to save tax in India using exemptions:   Another way to be tax efficient is to ensure you earn tax-exempt income   Dividend income from equities and mutual fund together is exempt up to Rs. 1 lakh (This is the aggregate amount of exemption for both equity and MF) Interest on Public Provident Fund/Employee Provident Fund and withdrawals Amounts received on life insurance policies (Link to last week’s Tax Thursday https://www.indianivesh.in/kb-blog/know-life-and-health-insurance-tax-benefits) Allowances for salaried employees   By ensuring you make the right investments and are aware of the Income Tax rules, you can significantly save on your tax expenses.   Note: *Annual interest component of up to Rs. 2 lakh (Rs. 3 lakh for senior citizens) can be claimed as a deduction against income under Section 24 of the Income Tax Act 

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Importance of Financial Planning

Posted by Mehul Kothari | Published on 01 Jan 2019

Why financial planning is importantIs earning money enough? No, it is not. Though the money you earn is important, if you don’t channel it into savings and use it to fulfil your financial goals, it doesn’t fulfil its purpose. Having sufficient corpus to meet your financial liabilities and having financial freedom is what is important. Financial freedom can be achieved if you plan your finances. Here is where financial planning comes into the picture. It is an imperative tool with which you can plan your finances, create the required investments and generate funds for meeting your financial goals. Though experts stress the importance of financial planning, many of you ignore it. Why? Don’t you realize the importance?If you don’t, here are some points which would help you see why financial planning is important - Why financial planning is important?Financial planning is important because of the various benefits it provides. If you have a well chalked-out financial plan you can not only handle your money efficiently, but also save for financial independence. Here are the benefits of financial planning and knowing them you would understand what makes it important – • You will have a contingency planThe first step of a financial plan is to have contingency funds. This fund helps you in meeting the financial strain faced in an unplanned contingency. Thus, when you develop a financial plan, you have provisions for meeting contingencies and your financial stability is not threatened. • It helps in budgetingA problem which many of you face very often is splurging through your monthly income. Either because of overspending or spending on unaffordable items, you blow a hole in your pockets which threatens your financial stability. This overspending and splurging can be avoided with a well-defined financial plan. Financial planning helps you create a planned budget. This budget gives you a guideline of your income and expenses and helps you save your income.• It gives a direction to your financial goalsHaving a financial plan means having a defined picture of your financial goals. Whether you want to save for your children’s future or for buying a house or for your retirement, financial planning gives you a sense of direction. You understand your financial goals and can save towards their fulfilment. • You become financially independentWhen you have planned your finances, you can meet any challenge life throws at you and deal with its financial implications. You wouldn’t have to depend on anyone to help you. Moreover, since all your goals would be planned in advance, you would have the security of knowing that there would be funds to fulfil your goals at the specified time. This brings in financial independence, something coveted by everyone. • You can earn tax benefitsWhen it comes to saving, there are many investment avenues which are tax-saving in nature. However, their tenure and returns vary. When you have a proper financial portfolio you know your goals and their tenure. Based on your financial goals you can pick those investment avenues which help you save tax and maximize your returns. Conclusion All in all, financial planning is important. If you want to live a stress-free life in terms of financial security, a well-defined financial plan is required. If you want to meet all your life’s goals head on, a financial plan is required. Moreover, the above benefits are also promised when you have a proper financial plan in place. So, if you have financial responsibilities and you want to achieve financial freedom, resort to financial planning.DisclaimerInvestment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

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