Tag Archives: budget

Thursday Trivia ~ 5 New Year Resolutions for Creating Wealth and Managing Finances

Resolution 1: Create a budget for life

When it comes to finances, life can be viewed as cash flowing in—and out. Saving and investing during your working years, if you stick with it, should lead to a rising net worth over time, enabling you to achieve many of life’s most important goals. Creating your own budget and net worth statement can help you build your road map and stay on track. Here are steps that can help:

  • Create a budget and pay yourself first. At a minimum, be sure to have a high-level budget with three things: how much you’re taking in after taxes, how much you’re spending, and how much you’re saving. If you’re not sure where your money is going, track your spending using a spreadsheet or an online budgeting tool for 30 days. Determine how much money you need to cover your fixed monthly expenses, such as your mortgage and other living expenses, and how much you’d like to put away for other goals. For retirement, our rule of thumb is to save 10–15% of pre-tax income, including any contribution from an employer, starting in your 20s. If you delay, the amount you may need to save goes up. Add 10% for every decade you delay saving for retirement. Once you commit to an amount, consider ways you can save automatically. Research shows that saving is easier when you “pay yourself first.” 
  • Calculate your personal net worth annually. It doesn’t have to be complicated. Make a list of your assets (what you own) and subtract your liabilities (what you owe). Subtract the liabilities from the assets to determine your net worth. Don’t panic if your net worth declines during tough market periods. What’s important is to see a general upward trend over your earning years. 
  • Project the cost of essential big-ticket items. If you have a big expense in the near term, like children education or house rennovation, allocate your savings and treat that money as spent. If you know that you’ll need the money within a few years, keep it in relatively liquid, relatively safe investments like short-term deposits or money market funds. If you choose to invest in a FD, make sure the term ends by the time you need the cash. If you have more than a few years, invest wisely, based on your time horizon.
  • Prepare for emergencies. We suggest creating an emergency fund with three to six months’ worth of essential living expenses, set aside in a savings account. The emergency fund can help you cover unexpected-but-necessary expenses without having to sell more volatile investments.

Resolution 2: Manage your debt

Debt as we have been saying can be seggragated into good loan or bad loan. For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset, such as a home. However, problems arise when debt becomes the master, not the other way around. Here are 3 things that I want to discuss which one should resolve to manage debt.

  • Keep your total debt load manageable. Don’t confuse what you can borrow with what you should borrow. Keep the monthly costs of owning a home which includes principal, interest and insurance below 30% of your pre-tax income and your total monthly debt payments including credit cards and auto loans and below 35% of your pre-tax income.
  • Eliminate high-cost consumer debt. Try to pay off credit card debt and avoid borrowing to buy depreciating assets, such as cars and mobile phones. The cost of consumer debt adds up quickly if you carry a balance. Consider consolidating your debt in a low-rate loan or liquidating some of your assets to generate cash. You can also check with your bank if any to up is available on your home loan. Set a realistic budget and have a planned schedule to pay back your loans.
  • Keep a check on your credit score. CIBIL allows you to generate a free credit score report every year. You can search for free credit report and find the link for CIBIL’s website. Resolve to generate this report and keep a track of your score. Any outstanding credit card balance which is pending due to dispute will also show up here. Its important that you settle all these outstanding balances. Outstanding dues lead to detoriation of credit score which will impact your ability to borrow in future. 
  • One Time Settlement of outstanding dues. Once you have settled the disputes and repaid all outstanding, make sure to receive a no due confirmation from the lender.

Resolution 3: Optimize your portfolio

We all aim for getting better returns on our investment. But research shows timing of markets is difficult and can be counter-productive. Also this urge of making higher return forces you to keeping looking for new products and take bigger risk. So create a plan that will help you stay disciplined in all kinds of markets. Follow your plan and adjust it as needed. 

What are the ideas to help one stay focused on their goals.

  • Focus first and foremost on your overall investment mix. After committing to a savings plan, how you invest is your next most important decision. Have a targeted asset allocation that you’re comfortable with, even in a down market. Make sure it’s in sync with your long-term goals, risk tolerance and time frame. The longer your time horizon is, the more time you’ll have to benefit from up or down markets. I cannot stress enough on this point. Its very simple but difficult to implement. Resolve that one should invest looking at the future goals. 
  • Diversify across and within asset classes. Diversification reduces risks and is a critical factor in helping you reach your goals. Mutual funds and exchange-traded funds (ETFs) are great ways to own a diversified basket of securities in just about any asset class.
  • Consider taxes. Invest in relatively tax-efficient investments, like debt mutual funds instead of Fixed Deposits. If you trade frequently, do consider that transaction cost and taxes do eat up into your investment returns. Various tax benefits are available on certain investments, but as pointed earlier invest with future goal in mind and not only for saving tax. 
  • Monitor and rebalance your portfolio as needed. Evaluate your portfolio’s performance at least once a year using the right benchmarks. Remember, the long-term progress that you make toward your goals is more important than short-term portfolio performance. As you approach a savings goal, such as the beginning of a child’s education or retirement, begin to reduce investment risk, if appropriate, so you don’t have to sell more volatile investments, such as stocks, when you need them.

Resolution 4: Prepare for the unexpected

Risk is a part of life, particularly in investments and finance. Your financial life can be upended by all kinds of surprises—an illness, job loss, disability, death, natural disasters. If you don’t have enough assets to self-insure against major risks, make a resolution to get your insurance needs covered. Insurance helps protect against unforeseen events that don’t happen often, but are expensive to manage yourself when they do. So let me lay out the guidelines that can help you prepare for life’s unexpected moments.

  • Protect against large medical expenses with health insurance. Select a health insurance policy that matches your needs in areas such as coverage, deductibles, co-payments and choice of medical providers. I think this is a no brainer and more and more people are aware about it and are ready to allocated money for covering this risk.  
  • Purchase life insurance if you have dependents or other obligations. If you have minor children or you have large liabilities, you need life insurance. Consider having a low-cost term life policy. These days policy is available to age of 80 or even 85 which is more than enough. Also make sure not to mix investment with insurance and go only for pure term cover. 
  • Protect your earning power with add on insurance covers. Generally these covers get ignored because of lack of awareness. 2 covers that one must look at is Personal accident or a disability cover and a critical illness cover. These covers come in handy when these particular risks play out help one retain his earnings in scenarios where one might get incapacitated. 
  • Protect your physical assets with property insurance. Check your homeowners and auto insurance policies to make sure your coverage and deductibles are still right for you. Review your homeowner’s policy to see what’s covered and what’s not. Talk to your agent about flood or fire insurance if either is a concern for your area. 

If you’re tech-savvy, consider storing inventories and important documents on a portable hard drive. It’s also a good idea to have copies of birth certificates, passports, wills, trust documents and insurance policies in a small, secure “evacuation box” the fireproof, waterproof kind you can lock is best, that you can grab in a hurry in case you have to evacuate immediately. Make sure your trusted loved ones know about this file as well, in case they need it.

Resolution 5: Protect your estate

An estate plan may seem like something only for the wealthy. But, there are simple steps everyone should take. Without proper nominations, a will and other basic steps, the fate of your assets or that of your children may be decided by the court. Taxes and fees can eat away at these assets, and delay the distribution of assets just when your heirs need them most. Here’s how to protect your estate—and your loved ones.

  • Review your nominations, especially in PF account, pension plans and life insurance. The nomination is your first line of defense, to make your wishes for assets known, and ensure that it gets transfered to whom you want, quickly. Keep information on nomination up-to-date to ensure the proceeds of life insurance policies and retirement accounts are consistent with your wishes, your will and other documents
  • Update or prepare your will. A will isn’t just about transferring assets. It can provide for your dependents’ support and care, and help you avoid the costs and delays associated with dying without one. Keep in mind that what’s written in a will is considered the ultimate wish and will override the nominations in various assets, so make sure all documents are consistent and reflect your desires. When writing a will, we recommend working with an experienced lawyer or estate planning attorney.
  • Coordinate joint holding with the rest of your estate plan. Designation of someone as a joint holder of your property or any other investments, can affect the ultimate disposition of your assets. Talk to a lawyer to make sure they reflect your wishes, and are consistent with will you are writing.
  • Consider creating a revocable family trust. This is especially important if your estate is large and complex, and you want to spell out how your assets should be used in detail. A family trust may not be needed for smaller estates where nominations, joint holding and a will can be sufficient. But talk with a qualified financial planner. 
  • Take care of important estate documents. Make sure a trusted and competent family member or close friend knows the location of your important estate documents.

Thursday Trivia ~ Key Eventful Budgets of the Past that shaped our Present!


Budget of 1991 – Era of Globalization, Privatization and Liberalization

Ex-Prime Minister Manmohan Singh is regarded as one of the key economists under the leadership of then Prime Minister Narsimha Rao who opened the closed doors of our economy to the World. The era up to 1991 is classified as License Raj where people had to wait several years for a gas connection, telephone connection and even a scooter! Today’s generation doesn’t believe that such a time even existed.

Kids too laugh when I tell them that we had to wait for several hours to speak with our relatives who stayed in other part of the country, these days they simply do a video call even to other countries and it feels as if we were never apart!

The landmark move in the Budget of ’91 has not only opened up our economy but also our minds. We have seen a good amount of jobs being created and Indian companies sending their young talent to foreign lands. Companies such as Infosys, TCS has made India a household name in the software industry.

These changes helped us change the shape of our economy. Form a country that was an agricultural economy we shifted to manufacturing and eventually a service based economy. This was also a milestone which led to introduction of private sectors in industries where only government functioned, Telecom, Television channels, Airlines and so on and so forth.

Some budgets simply change the course of History and 1991 Union Budget was the one!


The Gift Tax Saga

India has had a Love – Hate relationship with Gift Tax since independence.

In 1958, Government introduced Gift Tax Act wherein the gifts were taxed in the hands of gift giver at a flat rate of 30% with a basic exemption of Rs. 30,000/-.

However, Gift Tax Act, 1958 was abolished in the budget of 1998 and the giver as well as the recipient was not required to pay taxes on such transactions.

But in the budget of 2004, Gift Tax saw a backdoor entry through Income from Other Sources.

The major shift being that in 1958, Gift Tax was a giver based taxation and in 2004, as we know it today it became a recipient based taxation system. So rightfully the person who receives the gift is taxed.

However, a few exemptions are also provided and the term ‘relatives’ was used where a complete exemption was given where donor and donee were related to each other falling in the purview of Income Tax Act. There is also an exemption provided for any sum of money received on marriage as gift from anyone. The provision has been evolving ever since it was introduced in 2004.

“There may be liberty and justice for all, but there are tax breaks only for some.” – Martin A. Sullivan


The story of Indirect Taxes – VAT, Service Tax and the ultimate Goods and Services Tax

Indirect taxes are expense-based taxes. In any economy, an expense from one person is revenue for another. Since, a lot people are not under the net of income tax for the government, indirect tax applies to every Indian who spends money.

The Budget of 1986 is landmark for Indirect Taxation for India as it introduced MODVAT. Which laid the foundation in later years as Sales Tax was replaced with VAT in 2005. Similarly, Service Tax was introduced in 1993.

GST has replaced VAT and Service Tax and virtually all forms of indirect taxes. It wasn’t passed in a budget but was passed in the Parliament on 29th March 2017 as The Goods and Service Tax Act. The Act came to effect on 1stJuly 2017.

GST has been built on an Indirect Tax platform, which brings entire India under one structure. There have been a lot of discussions around its rates, although Finance Ministry looks to keep 2 rates for the future. GST has been designed to bring down price of goods and services as input credits are available and only consumer bears the tax. This takes care of costs not being inflated along the way.



LTCG stands for Long Term Capital Gain on equity investment. First of all, LTCG is applied on equities if the investor has held on to it for more than 1 year. Equities held in form of shares or mutual fund units attract short-term capital gain STCG, if they are held for less than a year. You may consider that 1 year is short period, but increasing the tenure will seriously hamper the equity market mood. Also many investors/ traders on an average tend to hold on to an investment position for a much shorter period.

Long Term Capital Gains on Equities has seen a Love – Hate relationship from various Finance Ministers over the years. While some are of the view that it must be taxed as it creates wealth, some believe it should be exempt from tax to encourage more participation in the capital markets. No prices for guessing I am from which camp.

In the Budget of 2004, LTCG on Equities was abolished and STT was brought on the transaction value of equities. The markets cheered the news!

However, last year in the Budget of 2018, Finance Minister re-introduced LTCG on Equities at 10% and all returns accrued before January 31, 2018 were grandfathered. There is a basic exemption of Rs. 1 lakh and gains above that are only taxed.

The markets had a knee jerk reaction but didn’t really crash. In fact, they are up and now touching their lifetime highs.

This simply shows that investors have tremendous faith in the future of India. Plus, the confidence for Indian businesses to create wealth for them over the long term and for that even tax is accommodated.

“There is no such thing as a good tax.” – Winston Churchill