Tax planning refers to the sum of all activities which help in bringing down the overall tax liability and adding up to your savings. The ultimate goal of a tax planning drive is to create an estimate of your total holdings and make wise financial choices by accounting for all exclusions, exemptions, allowances, deductions etc.
A little bit of tax planning today can be of considerable help in adding to your savings bundle in days to come. Today, we are going to discuss the basic principles of tax savings which can be of exceptional help for all beginners whether they belong to the salaried or non-salaried category.
1. Age factor
Age has a big role to play in deciding on the choice of financial instruments as younger people are mapped against riskier options. As a prudent tax planning principle, you need to opt for market-linked tax saving funds such as ELSS, NPS and ULIP.
On the other hand, if you are middle aged and risk appetite is low then you should opt for low risk investments such as Endowment policies, 5 year Fixed Deposit etc.
The willingness to take risk remains high amongst young investors and they can also be seen opting for home loans during this phase as the repayment tenure is pretty long. It is also imperative to note here that starting with investments early and continuing the same for a longer tenure can help in mitigating short term fluctuations.
2. Goal based Factor
The tax planning exercise is also considerably influenced by the financial goals of an individual. If you are planning on retiring within the next 5 years, then your tax saving investment portfolio needs to be less inclined towards the market-linked tax saving options. The main reason behind this is that you are pretty close to your goal and all sources of regular income is bound to cease soon.
On the other hand, if you have a significant number of years left for your retirement, then the maximum amount of funds should be allocated towards equity linked investments and less towards debt options.
3. Risk Appetite
Willingness of risk taking usually bears a direct relationship with our income level. Individuals having sufficient annual gross total income can segregate a lion’s share of their funds towards investment in equity oriented schemes. These funds have higher growth potential which in turn can add up to your corpus. Tax saving investments providing assured returns are advised to risk averse investors. They can easily go ahead with 5-year bank deposits, PPF, NSC, Senior Citizens Savings Scheme and 5-year post office deposit.
A maximum of INR 150,000 can be claimed as deduction u/s 80C by investing the same in a variety of instruments ranging from fixed deposits to public provident funds. Donations made on philanthropic grounds to charity like the National Relief Fund can also be claimed as deduction u/s 80G of IT Act. Various organisations have been pre-specified by the Finance Ministry to which donations can be made by a taxpayer for enjoying tax deductions. However, it is imperative to note here that only cash and cheque donations are eligible for deduction under this section of Income Tax Act.
Your tax planning needs to be in sync with your overall financial planning. You should thus ask yourself whether a particular tax planning tool can assist you with the fulfilment of financial goals. You also need to enquire if it coincides with your desired asset allotment after considering your investment perspective and risk appetite. Instances are not rare when the accompanying lock-in period of a particular financial instrument ends up causing an acute liquidity crisis for the investor.
A proper analysis needs to be carried out between the risk and rewards associated with investing in a particular instrument. Equity Linked Savings Scheme is usually suggested to young investors who can bear the instability of the equity market. They also have a small lock-in period of just three years for catering to your liquidity needs which might arise suddenly.
Seeking out the assistance of financial advisors seems like the easy way out while dealing with financial troubles. However, the real problem starts while gauging whether your advisor is actually taking care of your corpus. You might face several questions while dealing with the same. Are your friends and relatives doing better than you? Has your portfolio showcased much growth? These are some common questions which might trouble you while thinking about the viability of experts handling your finances.
Financial markets do not perform equally well every year and the current year is one such year which reported record losses for most investors. However, if you are facing difficulty in accepting the loss experienced, then your advisor might not have correctly gauged your risk bearing capability. This is why you ended up taking more risk than what you could normally accept.
The blunders committed by financial experts become less prominent in those years when the financial market showcases a booming pattern. Investors also do not scrutinize the performance of advisors as long as they keep on making money every year. Today we are going to talk about some common pointers which you need to consider for determining the efficacy of investment advice imparted by your advisor.
- Risk Bearing Capacity
Investors usually get to gauge their risk bearing capacity only when the markets crash. Such downfalls cause most of the investors to report loss figures. But the ones who are left stunned by the rhetoric decline in their portfolio are the ones who had been taking more risk than what they ideally should.
It is the duty of your financial advisor to assess your risk bearing capability on a yearly basis. This needs to form an extremely crucial part of the annual review of your portfolio carried out by your financial advisor. Such a review can either take the shape of a short quiz or discussions conducted regarding the changes in financial standing during a particular financial fiscal.
Childbirth, marriage, death, divorce, job loss and higher education of children are some such factors which deeply impact the risk bearing ability of an investor. Although as an investor, it is your duty to educate your financial advisor about such developments, the reverse also holds true.
Various mutual fund companies have started operating as investment advisors and in most cases, they refer to their own products while designing a client portfolio. Such forms of conflicted advice might be detrimental for clients in the long run. You should thus ensure that you are working with an advisor whose core business is just investment advisory services and not asset management, banking, accounting or insurance.
- Acting As A Fiduciary
Your financial advisor should actually act as a fiduciary thus taking all decisions on your behalf and for your betterment. But in most cases, investors do not have a clear understanding about the concept of fiduciary. Such advisors are under obligation of law to pay greater importance to your interests. Advisors working as representatives of banks, brokerage firms and insurance companies do not act as fiduciaries while advising their clients. This is why they provide advice which might even prove to be detrimental for their clients.
Non-fiduciary advisors on the other hand might recommend proprietary investment products which may not always be in the best interest of end customers. Thus, it becomes very difficult to analyse whether or not your financial advisor is acting as a fiduciary. In such a scenario, you can easily confirm the same by mailing a written request to your advisor. You should accept just written responses as vocal explanations to such complex topics are regarded as null and void. Your financial advisor is also under obligation to specifically spell out his or her fiduciary responsibilities in the contract signed at the very beginning of the investment tenure.
- All Inclusive Advice
Your financial advisor should consider all the other investments held by you as well as your spouse before recommending any particular addition to and deletion from your portfolio. The main intent behind this is avoiding over or under allocation of a particular asset class in your portfolio. Having a balanced mix helps an investor in making the most of his accumulated funds by effectively buffering from all associated risks. If you decide to have separate advisors for dealing with your and your spouse’s finances, then it is necessary to have effective communication amongst them.
- Clear Illustration Of The Process
It becomes easy for investors if a prudent, thorough and easily understandable process is demonstrated by the investment advisor before surfacing the various forms of investment options. The reports sent to them should contain a clear picture of the performance analysis and risk involved in the same. This needs to be prepared in an easily understandable manner which can be gauged easily by end customers and in the way in which it was intended by the financial advisor in the first place.
You can enquire your financial consultant about the viability of recommendations made by them and whether or not they are receiving any additional commission for referring the same. The purchase and sale of investment made by you should not be processed under any form of urgency and you can take as much time as required for evaluating the recommendations.
Read More :- FINANCIAL PLANNER-THE NEED OF THE HOUR
At the end of the day, a certain level of trust needs to develop on your advisor. In spite of that, you should also exercise prudence in every single step to determine the efficacy of the funds suggested by these advisors for betterment of your financial standing. Getting the backing of a financial advisor who possesses adequate degrees in the fields of economics, finance and investment can also be of great help in such a scenario.
When it comes to assessing our financial strength and weakness, many of us just remain clueless. It is partially because we are not aware of the importance of such an evaluation. Another reason for such ignorance is probably that we do not know where to begin with. Before everything else, we should know the consequences of not doing an analysis of our financial strength and weaknesses.
Just consider a situation when your income suddenly stops due to a contingent situation such as an accident, a shutdown of your company, a nationwide financial slowdown, or major turmoil or just your inability to work due to deteriorating health. We can even consider the current situation of people losing their job due to Coronavirus. This leads to unemployment for millions. In such situations, your financial strength is tested. Even when you have large liquid savings in a bank account or similar common accounts that do not offer any substantial growth for your money, they do not save you from utter financial crisis for long since the growth of money is not enough to make you stay afloat above the depreciating value of money.
So, you need to achieve financial growth with steady investment and corresponding financial planning. How can you know you have done it the right way? Well, this is why it is important to go through a time tested procedure to assess your financial status.
Here we introduce a must follow the checklist to assess where you stand financially.
Read More :- Financial Planning – A Need not a Choice
- How Much Insurance Do You Have To Meet Contingencies?
This is arguably the most important consideration when it is about evaluating your financial status. In case of death, disability and disease of the earning member of a family, a compensatory sum of money is immediately needed to meet the contingent situation. Your financial planning should begin with this. Before making investments that provides you growth, you need to make provision for assured financial support for your dependents in case of any contingency.
- Is Your Investment Returns Secure From Inflation?
If you have put all your money in a regular bank account considering your money to be safe and growing with the regular interest rate, you are actually killing your hard earned savings.
Yes, money not achieving growth over and above the inflation is actually a degrowth of money.
So, What is inflation?
To explain it in common man’s term, inflation is the depreciating value of money which in regular life reflects the rising cost of goods and living. Thanks to inflation, what your money can buy now may not be enough to buy the same thing a few years down the line. Naturally, the financial growth you achieve should beat this rate of depreciation of money.
If with stocks, PF, bonds, Mutual Funds, annuity schemes and other investments together you achieve a growth of 10% per annum, while the inflation rate is 8% for the same period, your actual growth of money boils down to only 2%. Now you need to evaluate the return of your investments against the projected inflation rate.
- How Secure Your Financial Instruments Are?
Now you need to evaluate the security of your money with the chosen financial instruments. Obviously, you neither can gamble with your hard earned money by investing all your savings in stocks nor can remain satisfied with the depreciating growth of very secured financial instruments like bank FDs, PF, etc.
You need to take the best of both worlds while avoiding the negative factors from both ends. While your money in selected stocks and MFs can earn a better return year on year, your secured investments in other instruments help you keep your investment portfolio secure. Thus with diversification into various instruments, you can achieve both security and growth.
- What About Liquidity?
What happens when you need a few thousand rupees in hard cash? Obviously, in emergency situations nothing comes as immediate help as the hard cash. So, beside securing growth and ensuring security for your money over a period of time, you need to make provision for liquidity.
In case of emergency you should be able to withdraw cash to meet your immediate and emergency needs. Savings and investment instruments vary in their liquidity. Savings bank accounts, some bonds, some mutual funds and stocks offer high liquidity while endowment policies, unit linked insurance plans, many mutual funds, annuity or pension plans are low on liquidity.
- How Much Shortfall Is There To Achieve The Financial Target?
Like everything in life, success with your financial planning obviously requires fixing your objective for the long term and targets for a shorter span. Now as per the target you can easily assess the shortfall in the required fund.
For example, if you need to buy a property, you constantly need to evaluate and keep a close tap on the growth of your investments and accordingly measure the value against what you need.
So, evaluate this Checklist at regular intervals to be sure that your goals are met without much hiccups in between. These are just the immediate steps to keep you on track in your financial journey. For any further advice, you can get in touch with our financial advisors who will guide you to achieve all your goals effectively.
Financial planning paves the way to achieve financial independence and plan a smooth retired life while one is still earning. Early planning provides a long horizon to multiply the investment. People of different age groups have different priorities, hence, each of them needs to plan accordingly to achieve their financial goal. Financial planning can have varied horizons and purposes for varied individuals; say, X is planning for his retirement by 40 while he is still 26 and Y is planning his child’s MBA program abroad after 16 years. Financial planning is a very thrifty affair. Proper financial decisions can result in amass disposable income.
Everybody has a desire to earn high, spend high and live a lavish life, but only a few can actually make that happen. Seriously, living a lavish and elegant life is not just a matter of destiny, but a result of proper financial planning and effort made to make it possible. Financial planning is very much necessary for an individual in a similar fashion as much it is for any business. It is simply about analysing where one is currently standing and then determining how he would like his future financial condition to look like. It is simply because of unending financial obligations and unpredictable journey of life, financial planning is required to be set in priority.
Why must Financial planning be taken as a need not a choice?
Financial planning is crucially required as there are limited sources of funds that need to be diligently allocated towards necessities and luxuries, also setting aside savings and paying off the debts from the same source. Since sources are finite, thus, financial independence can be achieved through routing the idle or accumulated funds into a proper channel which can help it multiply. It is always better to start early so that the benefit of compounding can be availed which acts as a driver in enhancing the investments with multiplying the effect.
One needs to be fully disciplined towards the financial planning mechanism. Developing a habit of regular savings and investment through proper planning is very essential for building a strong financial foundation.
Financial planning must be done with the view of achieving social security and financial independence even after retirement. Since nobody is aware or has the least hint of what is going to happen in the future, hence, financial planning can prove to be a favorable tool for tackling such unpredictable and dynamic phases of life. Proper planning can help one make provision for contingencies and build a sturdy financial status for oneself and family.
Read More :- Financial Planning For Newlyweds
How to start planning?
While planning for a delightful financial future, it is advisable to take help of a professional financial planner who has handsome experience and expertise in providing such services. Proper consultancy can lead to an effective plan. Financial planning can be done by making an investment in mutual funds, fixed deposits, endowment policies, equity and debt securities etc. Foremost thing in financial planning is setting the financial goal in accordance with the purpose and investment horizon; then comes the most critical part which is the risk profile of an investment; then choosing the investment avenues which can serve the purpose of such a plan. It is always safe to develop a diversified investment portfolio which can provide balanced risk and return. The financial objectives and investments need to be perfectly synchronised to avoid any financial distress.
Save yourself from manipulators- Do a reliability check
Financial planning, nowadays, is becoming popular among the younger generation who have just started earning with the vision of gaining independence and a bright financial future. The crowd of daydreamers has also resulted in an evolution of self-proclaimed financial planners who seek the most prominent opportunity to quench their unethical thirst. An investor shall use his discretion while hiring his financial planner who can keep his investments safe and secured. He should not fall easy prey to the mean-minded vultures that set up a pompous financial consultancy business to attract innocent investors. Most of them just turn out to be salesmen or agents who have the least knowledge about what they are selling and aim to earn part-time income. An investor should try to discriminate between a real and a fake financial planner by comparing the way each of them interacts with him; their counselling attributes; manner of gathering data; clarity in concept about financial planning; how prominently they are able to present the technical comparison between various financial plans, etc. Efficient and effective counselling can be done by market research and understanding the financial goals and requirements of a particular investor.
In a growing and rapidly evolving economy like India; financial planning by its citizens can be an aid to economic development. At least it is better that the economy receive funds internally than borrowing funds from foreign investors. Financial planning by people from all walks of life should be encouraged so that even the person who has the minimum can also feel the vibes of financial independence and security. A persisting myth among the masses today is that financial planning is only for those people with higher income or who have wealth in abundance. People from generations have been a victim of this misconception and grow older with the same mindset. Financial planning has nothing to do with the rich or the poor, one who has a surplus or one who has minimal; it’s all about managing what you have. Financial planning provides an opportunity to take control of your financial life, make diligent decisions and achieve desired financial goals.
Marriage may be your bliss from heaven, but financial planning is what you have to do next. Such financial planning may now involve so many things like setting up of financial goals, debt restructuring, budgeting, tax planning, etc. This article will deal with financial planning for newlyweds.
Identification of financial goals and objectives
- Most Important thing would be to discuss what you both want in the context of financial planning. Clear discussion of expectations and segregation of financial responsibilities would definitely be helpful.
- The second most important point in financial planning would include short term, medium term and long term financial decisions. Short Term financial planning would involve credit card payments, medium term financial planning may include vacation planning, etc. and long term planning may include retirement planning or planning for home etc.
- This may seem like a futile idea because we tend to know our income and expenditure. However, once you get married, the situation may change. Now is the best time to lay the budget and analyze your surplus or deficit position. If you have a deficit, that means you are spending more than what you are earning. This means that you should cut down on your spending pattern and borrowings.
- The reverse situation occurs if you have a surplus. In such a case, you have to invest such surplus to build wealth for short term as well as long term.
Rethink on debt burden
- Post marriage, you may think of availing bigger loans which may need a clean credit score. Cleaner and better credit score can be built by reducing your debts. Suppose, you have bought the TV on EMI payment method and are still due to pay off almost half of the total amount. The loan which is due will show as a liability which will limit you to take additional loans to some extent. This will reduce your credit score.
- Also, one more problem is that if you have any personal loans which you may have borrowed from your friends or relatives. This won’t show up in your credit score. However, it may equally hamper your disposable income which would have been utilized for fulfilling your other needs and goals like planning for a house.
- So you should think of clearing such debt off your balance sheet. This will not only improve your credit score but will reduce your cash flow also.
Updating of financial documents
- This is one of the vital things to be done at the earliest. However, it is always done in a rush when it is super urgent. Instead, you should think about updating the financial documents once you get married. One of such documents would be a Marriage Certificate which is vital proof that you are married. If the spouse is planning to change her name post marriage then she should get it updated with the name and address in the Passport, Pan card, AADHAR card etc.
- If you are willing, then you may carry out a nomination facility in the name of your spouse. This may avoid future inconvenience in case of any emergencies.
- You may have seen in your childhood, that in the last week of the month, your father was left with very less money. And whenever he asked your mother, she immediately would bring in some cash, hidden in some grocery box or prayer room, etc. This is what we actually call an “ Emergency Fund”. However, the Emergency fund has to be quite bigger now, keeping in mind inflation and other lifestyle needs.
- Ideally, an Emergency Fund should be equal to minimum 3 months of expenses which will help you to be afloat in case of sudden job loss or accident etc. If the spouse is not working, then increase this amount to meet at least 6 months of your expenses. This fund can be maintained in liquid assets. It is suggested to invest such an amount in the Flexi Savings account, where you get a rate of interest on Fixed Deposit and can withdraw money from any ATM in case of any emergency. Another good investment option is Liquid Mutual Funds where you will get better returns as compared to FD and it is also tax efficient in the long term.
- When you are done with your budgeting, goal setting and discussing your financial health, you are advised to seek professional help for financial planning. This would include Retirement Planning, Investment planning (for parenthood or for tax saving or for wealth appreciation) and Protection planning (Term Insurance and Health Insurance).
- Financial Planner may stress upon equity intensive investment for long term objectives. And for short term financial planning, he may advise Debt investments. So depending upon your financial objectives, your financial advisor may advise accordingly.
Re-evaluation of your financial planning
- Financial Planning is not a one time thing, hence it needs periodic revisiting. Changes are the only permanent thing so you have to change your financial planning to adapt such changes. It may happen that both of you might be working, but suddenly your spouse may stop working due to pregnancy. This may take a great hit, if your spouse decides to quit. Your finances may go for a twist. So it is advised that you should revise your financial planning periodically to ensure that it is along the lines and is appropriate for your current position.
Newlywed finances can be a bit tricky and overwhelming at times. We hope that you now will have an idea about a few financial things you and your partner should know as you plan a future together. This is the perfect time to get to know each other financially. Marriage is a two wheel vehicle and hence both have to consider finances to save yourselves from any future issues.
For any further guidance, you may feel free to get in touch with one of our Financial Advisor to plan your finances in a much better way customised to your needs.
Everyone has some dreams in life – whether it is starting a new business, buying a new house, travelling the world, planning your family’s future or retirement. All these are called financial goals. As these goals have emotions, it also has a monetary value. Financial awareness therefore becomes a vital ingredient to effectively plan all of the above. Being aware of your requirements early in life leads to better financial planning.
Whatever activity we perform today will definitely have a strong effect on our future. Let’s understand this in detail.
You can’t predict the future. If at all you think earning more will secure your future then I would say that it’s only a myth. Only earning more will not assure you a better future but planning your future will definitely assure that your future is secured.
Earning money for a better future is important but saving a part of your income and capitalizing on the savings made will definitely assure you a secured and better future.
What is our approach towards saving?
What should be our approach towards saving?
In the layman’s term, one thing I want to say is 1st save and then make any expenses and only saving is not enough, channelizing your savings with your future goals is something we should do.
The second most important step after Saving is
I know that when we hear the word “INVEST” we think to invest in lumpsum but we can also start today itself by investing rupees 500 or 1000 per month.
Now the question that will surely arise in your mind is how shall we plan our future? How much money should we save? How much money should we invest? Where should we invest? How to invest?
Keeping in mind the importance of savings and investment for a better future the concept of “FINANCIAL PLANNING” was started to make sure that whether time changes or not we are safe from all the risk that may or may not occur.
I know that we are very busy in our life but we also cannot ignore the importance of financial planning and thus the need for FINANCIAL PLANNERS arises.
Read More :- 5 Things To Do In The New Financial Year
WHO IS A FINANCIAL PLANNER?
Financial planner is a qualified investment professional who analyses the current financial position of clients and helps them to reach where the client wants to go in future. A financial planner is a qualified experienced person who will fill the gap between where you are and where you want to be.
A financial planner will analyse your assets, liabilities, short term and long term goals, will advise you in a systematic manner that will help you to achieve all your goals and will review your goals from time to time.
Financial Planner is a guide who will step in your shoes and advise you what is better for you. Customer satisfaction is the main motive of every financial planner.
The basic difference between a financial agent and a financial planner is that an agent is only interested in commissions but this is not the case for a financial planner. An agent may sell you a product and might get vanished but a financial planner’s job starts after he has advised you to make the following investment in order to reach your goal.
A financial planner is a person who will help you to attain long term financial stability even if you are retired and there is no source of income. He will plan your investments in such a manner that you don’t have to be dependent on others financially as your investments will give you handsome returns.
He is a person who is a keen market observer and who analyses the market and then would take the investing decisions for his clients.
So it is very important that you have a Financial Planner who guides you and handhold you in your financial life journey.
The beginning of the new financial year is a good time to analyze your investment and assess where you stand, so that you can see your year-end financial issues. It is also a good time to assess your insurance plan and your tax planning. If you start planning right, at the beginning of the financial year, then you can have peace of mind, for the whole year ahead. So, today we will discuss five essential things that every investor should keep in mind now, which will be beneficial for them later. They are listed below:
Review the Portfolio:
There is a huge difference between review and re-balance. Review is making sure that your investments are working out the method you need them to work out. Re – balancing your portfolio is when you want to implement changes in the non performing investments. You should also know when you must review the portfolio. For Example, equity mutual funds, if you review the fund after a year, you may see that it has given less or negative returns, but if you review the fund after 5 to 10 years, it would have covered up for the loss it made in the first 2 to 3 years. Some investments take time to grow, whereas some need to be monitored from time to time, especially those who trade in the market. So review is very important, but it is a must to know when to review it, or it could cost you big time.
Re-balance your non-performing investments:
Re-balancing of the portfolio is one of the most essential steps in financial planning. You may have started the year with sixty percent sharing out to equities, thirty percent to debt and ten percent to gold. While revising your funds, you must also pick out the under-performers from your portfolio. Switch out mutual funds that have performed below or are behind their standards for the past three to four years. Even shares that have run up to a certain extent, in the current months and now trade off at very high estimates, should be taken out. This will decrease the risk in the portfolio.
Keep in mind your age, the term for your investments and risk appetite before considering, your options for re-balancing your portfolio. Select a target that you want to achieve and form your asset mix, in line with that target. However, you should re-balance your portfolio, only if you feel your investments are not going on the right track. But, if you feel that they are working well for you, then you can leave it as it is. Make sure that your decision is backed by an expert in this field, before you re-balance your portfolio.
Review Your Retirement Saving Plan:
Retirement Planning in India, is still not taken seriously. Increasing inflation should be the biggest worry one should have, when it comes to retirement planning. Reviewing your retirement plan is very necessary, as it will help you know, whether you are on the right track or not. There are so many types of retirement saving plans, such as, NPS, EPF, PPF, mutual funds, annuity plans and Bonds. So, if you haven’t taken any Retirement saving plans, then find out which one would be more suitable for you and if you already have a retirement plan, review it to see, how close you are to achieving it .
As per a Survey, Indian employees assume that they will want an average of 58 percent of their existing income in retirement. When in fact they would require around 71 percent of their income. Pension plans are now gaining acceptance, as people are being made aware of the importance it has, to meet retirement aims. So, it is sensible choice to assign, a good portion of your asset towards retirement pension plans.
Boost Your Emergency Savings:
Emergency savings is very essential and it is a most important reserve that has to be maintained. It doesn’t matter whether you have insurance or huge investments, but an emergency fund is a must as it could fund any of your emergency problems. A certain sum of cash must be kept in an emergency savings fund distinctly and not together with your savings account. No matter in what manner you earn money, but keeping an emergency fund is a clever move that can support any future financial necessity.
So, try to make it a habit to start adding small sums of money each month. Think of it, as an asset that can help you in the future or during the period of any personal or family crisis. So, as your income increases, so will your expenses, and so your emergency fund will also have to increase. Boost your emergency savings to the extent, that your expenses will be taken care of for the next 3 to 6 months at least, in case of any emergencies, that could stop your income.
Move everything online (in context to Purchasing/Managing Investment Online):
Now a days, Businesses are moving all of their procedures online, which makes the working of the business very smooth. Everything is going digital. Who would have ever thought that one could buy groceries online? Now right from bill payments to taking loans to being able to sell and buy funds, to shopping, all this can be done online. Some of the main reasons, why online management of your investments makes it convenient for you is because, you do not need to follow up with your agents, or you do not need to personally go to the fund house and get a status update, which saves your time as well. Another reason is that it is easily accessible, from wherever you are, you do not need to wait till you get home or wait to reach the office, you can just do it on your phone, wherever you may be. So go digital, it will make your life easier!
SO, these are the five essential things that you should do in the new financial year. Besides this, you also need to analyze your financial aims. If certain savings have not done as well as projected, there would be a deficit in the target set for that aim. Then you will have to make extra investments to bridge that gap. Review your portfolio every 3 to 4 months at least, to make sure, you do not have to compromise on your goals later. Follow the above, and all your investments will be working for you.
Protecting your assets and your loved ones has always been the first priority when one starts to plan their finances. The first step should be the protection of wealth and then the accumulation of the same.
It is vital to realise how important it is to have a WILL. In India, majority of people think that they are immune to any unfortunate event. Ask those who have suffered. We have personally seen people realise it’s importance only when they see their close ones suffering because of no will or invalid will. The trauma the family goes through emotionally is already too much and on top of that if they suffer financially also, the family just gets shattered.
The outbreak of the COVID -19 pandemic has just given us one more reason to realize that storm doesn’t knock on your door before coming. It is our social responsibility to try everything we can to prevent the spreading of this deadly disease. But at the same time, shouldn’t we be prepared for the worst that could happen to the well-being of our loved ones?
COVID 19 or NO COVID 19! It has always been very critical to have written your WILL. It is strongly suggested that you have a WILL. It is not very difficult to have one.
Let’s start from the very basic:
What is a Will?
A will is a legal declaration of intention of person who is making a WILL about distribution of his property and wealth.
Some of the advantages of a Will are
- Writing a Will makes sure that your assets are distributed as per your wish.
- It reduces family disputes to a greater extent and saves your family with all the stress.
- It gives you Peace of mind that you are well prepared.
- It ensures a smooth transition of wealth to your loved ones
Who can write a WILL?
One who writes the will is called a Testator. A person can write a WILL if he fulfils following conditions:-
- He/she must be 18 years of age and above
- Must be of sound mind
- Must not be in an intoxicated state i.e. no alcohol or drugs to be consumed while writing a will
- A will should not be written in undue influence/ coercion
Is this enough? No. There are some other requirements for a valid Will
- It must be attested by atleast 2 witnesses.
- Attach doctor’s certificate to prove sound mind.
- Registration is not compulsory but still recommended as it will prove it to be more authentic.
Now suppose the will is made as per the above requirements, and after some time, you acquire a new asset or sell any existing asset or you want to donate some of your wealth.
What can be done in this case? Will you write your will all over again from scratch. No need!
You can make a codicil. Any alteration, addition or deletion in the main will can be done by making a codicil. It should be attached to the main will. However, if too many changes, it is recommended to create a new will.
Last will is always considered as a valid will. The moment new will is created, previous will becomes invalid.
Now that the will is ready, there must be someone to carry out the responsibility of distribution of assets as per the will after the testator’s demise. This person is called an Executor. He needs to be appointed by the testator in the will.
So to be more precise, an executor is someone named in a will who is given the legal responsibility to take care of a deceased person’s remaining financial obligation and disposing of assets according to his wish.
You should appoint a person whom you can trust as an executor. Usually, very close relative or spouse can be made executor. Please make sure this person is either of the same age or younger to you. Parents ideally should not be kept as executor because of the age factor. Alternatively, One can also appoint third party legal executors.
Now the will is created, Executor is also appointed.
Let’s consider a case that if a person dies and now it’s the executor who will initiate the proceedings but what if –
- His executor also dies or
- His executor becomes disabled or
- His executor declines to execute
In all the above cases, the court will appoint someone as an administrator. Administrator role is exactly like an executor’s role but since he is appointed by the court and not the testator, he is called as an administrator.
Important point to note here is that if the executor declines to execute i.e. renounces the executorship then he/she will have to give up their share in the will as well. This means he cannot take bequeath in such case.
So it is suggested that you appoint alteast 2 executors to avoid such situations.
How will someone check the genuineness of the will?
For instance, there are two sons, each having a will of their father which one of the two is genuine. Unless the will is probated, no one is going to accept it. A will, till it has probate by high court, it cannot be treated as genuine.
What is a probate?
So probate means a copy of a will certified under the seal of the court of competent jurisdiction with a grant of administration of estate. Probate is the proof of the owner of assets under WILL. We do not know for sure the person claiming to be the owner is a rightful owner or not. So after probate, court says now this person (beneficiary) is identified as the clear owner of a particular asset.
A will can be revoked anytime during the lifetime of the testator. How?
- By creating a new will or
- By destroying the old will
If I have done nomination, do I still need a Will?
Yes. Nomination just makes sure your assets have a custodian. Just by making someone nominee, you are not making them the rightful legal owner. So a WILL is a must. If there is no WILL, the assets will be distributed as per the succession laws.
We hope all your queries related to WILL has been answered. We strongly recommend that you create a WILL keeping in mind all the above mentioned requirements so that it cannot be contested in the court and transition happens smoothly.
How do we define financial success. High salary or huge bank balance. High salary or huge bank balance won’t make you rich. Finally, Amount left with you after paying off your debt is an important deciding factor for financial success. To know this you need to calculate your Networth.
Networth helps us to know how much we have incase if we sell all our assets and pay off all the liabilities. Networth provides snapshot of financial position at any given point of time. If we know our networth today, it will help us to know are we on track or off track of achieving our financial goals. It will help us to know end result of income earned and money spent till now. Networth help us to evaluate our financial health and true picture of our financial life. We can view Networth as financial report card to keep a track of our financial life and take corrective action required in case we are off track.
Let’s understand how to calculate networth.
The first step to calculate Net worth is to list down all the assets we own. This may include
- Bank, Cash and Liquid Mutual Funds balance – It includes cash in hand, bank balance, short term FD (less than 90 days) and liquid mutual funds scheme. All the assets are very liquid assets.
- Financial Assets – This includes your investment in Equity shares, bonds, Non-convertible debenture, Company & Bank FD, MIS, NSC, KVP, PPF etc. All are considered at their current value.
- Real Estate – Real estate includes current market value of properties including residential house, Land, commercial properties etc.
- Personal Valuable & Assets – Includes personal use assets like Motor Vehicle, Jewellery, Painting and other valuable personal assets etc.
Know More About – Financial Planning
Next step after listing assets is to create list of Liabilities which may include loan or debt payable to banks or money borrowed from others. This may include
1. Housing Loan – Balance outstanding in the loan to be repaid to the bank or lender
2. Car / Vehicle Loan – Balance liability payable to bank
3. Personal Loan – It includes Outstanding balance to be paid
4. Consumer Durable Loans – It includes Outstanding balance loan on consumer durable like Laptop, TV etc.
5. Credit Card Outstanding – Outstanding balance on your credit card.
6. Other Loan – It includes balance on other type of loans like mortgage loan, loan on jewelry or loan from friends / relatives
We can calculate Networth by subtracting Liabilities from Assets or as per given formula
There are three possible outcome
- A negative net worth means you have less assets and more liabilities or in other words you owe more than you own.
- A positive net worth means you have more assets and less liabilities or in other words you own more than you owe.
- Your Networth is Zero when your assets equals Liabilities
Ideally at any point of time in your life your networth should be positive. But due to possible trade off between needs and wants it may happen in the initial years of our career i.e. between 20’s and 30’s we may have negative networth. But our aim should be to create positive networth as we get closure to retirement i.e. in 50’s and it should keep increasing.
One of the important Role of financial planning is to help us keep a track of networth and take right financial decision. Our action should help us to increase networth instead of keeping constant or decreasing it. Decision taken in isolation like investment or savings without preparing or following financial plan could have negative impact on networth.
To conclude, networth helps us to know where we stand financially. This will help us to take right financial decision and we are better prepared to achieve our financial goals. Keep a track of Networth and be financially healthy.