Finance Facts: April 2018

CBDT Amend rules for Salaried Class in Income Tax Act

April 05, 2018

Happy new financial year! Time to take stock of money matters

April 01, 2018

I should start with a warm message - Happy new financial year. It is rightly said that a good beginning makes a good end. Hence to convert this beginning into a good start, it makes sense to make some resolutions of New Financial Year - resolution to plan our expenses, resolution to achieve Financial Freedom and make your money work for you. It is better to come to the point. Here are some things you must consider today, tomorrow and for the whole year and of course for the life time:

Reviewing your ‘Income Expenses Structure’ (Budgeting):

It is always important to prepare your Inflow/Outflow chart in the beginning of the financial year, so as to be prepared for the year ahead and also keep a track on your expenses. It helps you to get a reality check about what percentage of your total income is going towards expenses and how much money can be left for savings. It also gives you a fair idea on where can you cut down some of your unusual expenses. This process will help you to plan your bigger expense & also help you to make your saving automated.

Spend Smarter:

Along with managing your money in a better & efficient way it is equally important to spend your money smarter. Nowadays we own more stuff than we actually need, there must be few things that you purchased, were of no use or of minimal use to you. Spend your money wisely; this can help you save more without any added efforts. The way you can do it is trying postponing your urge to buy that particular thing by few days & after that if you feel no urge to buy it that means you don’t need it.

Prioritise your debts:

Paying off your debt should be your first priority, as it is always advisable to earn compounding interest rather than paying it. how compounding interest can do wonders for you, but do understand that it can equally play out as a curse if it’s on debt & not investment. So make a list of all your loans & try paying them off, starting with the one where you are paying highest interest rate.

Set your goal:

Everyone has some or the other goal in life. To achieve these goals you should follow a simple rule ‘Plan – Save – Invest’. Create a financial plan, start saving and invest early in order to generate long term wealth and fulfill your goals. You should define your goals in order to achieve them. Identifying goals gives a purpose for investments.

Have right asset allocation:

It is known that 90% of long term wealth creation happens through correct asset allocation decisions. Periodic portfolio health check up helps in achieving long term goals. You should review your financial portfolio at least once a year and there is no better time other than month of April (start of Financial New Year) to check your portfolio, to know the proper asset allocation of your portfolio. Also do check if there is a change in your current risk profile and the concurrence of your asset allocation and risk profile.

Magic of tax planning:

Tax planning is one thing that most of the individuals ignore in the beginning and then end up paying more tax. This additional tax payment could have been saved if planned properly in the beginning of the year. At the end they rush to save their taxes and end up investing in instruments which doesn’t suit their portfolio or risk appetite.

Tax-planning is not only to reduce tax liability but it’s a way to achieve future goals by planning finances in a tax –efficient way with a view to earn optimum returns. Over a longer period power of compounding can also show its wonder under section 80C

The above working illustrates the wonder that compounding can show U/S 80C (Yearly investment of Rs.1.5 Lacs/-) if planned systematically. Tax planning products can be broadly divided into debt & equity, if your portfolio is small & major portion is covered by tax planning than you should also pay equal attention towards asset allocation in tax planning & when you need the corpus.

Some of the famous Tax efficient investment avenues are:

Overcome procrastination:

Some people have the habit of giving less urgent tasks the preference over more urgent ones, and thus putting off impending tasks for future, sometimes to the last minute before the deadline. For example, every year you can file your income tax returns between April 1 and July 31. However, most taxpayers file tax returns during the last week of July. Similarly, for most people every year tax planning starts in January, instead of planning and executing it round the year. Procrastination even costs one if investments for a particular goal is delayed. For example, two people start investing Rs.2,000 every month for retirement, the first at 30 years of age and the second at 40. At 8% p.a. rate of interest on their investments, the first person has about Rs. 18 lakhs more than the second person at 60.

Conclusion:

It is always better to be proactive than reactive, proactive behaviour brings in more focus & control. It helps you to see your financial challenges in advance & gives you healthy time to find a solution for them.

Finance Facts

CBDT Amend rules for Salaried Class in Income Tax Act

Happy new financial year! Time to take stock of money matters

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