Clear your debts by part payments

Every one of us, most likely has one or the other type of loan. Those who dont, I must say that, they are indeed blessed
Loan is not a bad thing to have. It gives one the ability to buy something(preferably an asset), at a earlier time, and slowly pay over a period of time.
Though it's a good thing, but at the same time, you need to understand that, it's from  the interest which you pay, which gives banks all the profits and also manage to pay the salaries of all their employees. Not a small amount eh ?

So the earlier you reduce you loan amount, the better for you, from your savings point of view.

Let me give you an example, which will tell you, how much you can save by doing a early part payment.
Assume you have taken a housing loan of 20 lakhs and your monthly EMI is roughly 20,000/-. An EMI will have a principal component as well as an interest component. In the initial years your principal component will be very less, while your interest part very high, and this will change over the years.

So, if you happen to make a part payment of say 25,000/- or 50,000/- it will make a big impact on the number of EMI's which you have to pay, if done in the early years. While the same amounts will not have the same impact in the later years. Nevertheless, its always beneficial, whenever you do the payments, it always helps to reduce to total out go from your accounts

Here is the table below, which shows the EMI for 20 Lakhs for 20 years at 11.75% Interest.

S.No	Monthly Installment	Interest	Principal	Balance
0				2000000
1	21674	19583	2091	1997909
2	21674	19563	2111	1995798
3	21674	19542	2132	1993666
4	21674	19521	2153	1991513
5	21674	19500	2174	1989339
6	21674	19479	2195	1987144
7	21674	19457	2217	1984927
8	21674	19436	2238	1982689
9	21674	19414	2260	1980429
10	21674	19392	2282	1978146

Only the first 10 Installments are shown above. But you an see, that even though in the Initial months, you are paying 21674/- as EMI only 2091/- is used to pay up the Principal amount, and a huge amount of 19583/- is used up for the Interest.

So, practically, close to the end of 1st year, if you pay up 25000/- as part payment, close to 10 EMI's worth of Principal, you would be paying in a single transaction. (its an approximation as 10th months principal is 2282/-. and 25000 divided by 2300 will be approx 10.

So technically, the effort required by the next 10 EMI to pay up that 25,000/- has been taken care.
Which means, by paying 25,000/- you have saved up paying 25000 x 10 = 250,000/- ie Two Lakh Fifty thousand. Thats quite a saving and you also end up completing the EMI's earlier :)

So whatever be the case, always try and pay up as much as possible. Try for 25000/- per quarter to pay up and it will help you a lot.

Money saved is also money earned.

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Tax Planning for New Financial year

April, this is the time, when we need to declare the Tax Declarations which we would be doing in the coming year. Some of us declare few investments and only hope to do them sometime in the year. But not all are able to meet that commitment. Here are a few advices, which I would suggest to use as a guiding tool, rather than for planning.

Lets look at the Simple Tax Investments which we can use.

80ccc

1. Upto 2 Lakhs under Section 80 ccc.  In this 2 Lakhs, 50,000/- is only meant to be invested in NPS(National Pension Scheme). 
2. The Remaining 150,000/- can be invested in Insurance Plans, Mutual Funds , NSC.
3. From this 150,000, since you would also have been paying PF from the company itself, it would be also considered as an investment. You will need to do it and you dont have a choice. 
4. If you have a home loan, the Principal from the home loan, will also be considered as a contribution towards the 1.5 Lakhs. 
5. After subtracting the PF amount which you are paying and the House Loan Principal component, the remaining amount will need to be invested, in other instruments like Term Insurance, ULIP Policies, Tax Savings Mutual Funds, NSC etc.
6. If you dont have any Insurance Policies, its a good time to start. Maybe smaller amounts is a good start. 
7. If you dont want to invest in a hurry, then plan to invest in Mutual Funds. So that, that commitment doesnt become a recurring one every year. But make sure, you dont leave any room for saving taxes.

80D

The other Tax Savings, which most of the folks dont do, is the Medical Insurance. You get deduction upto 25,000/- per year under section 80D. Its always good to have your Medical Insurance plan of your own, even if your company provides you with one.

NPS is something, one should start investing, as those in the private sector will not get any pension during their retirement life. Its only your own investments and the PF's which will come to your rescue during your retirement life. 

Out of the 2Lakhs under 80ccc, 50,000/- should be from NPS only. Though you can and should try to invest more. 

House Loan Interest

The principal component of the house loan, will be considered as an investment under section 80ccc, while the Interest  component will be getting full tax exemption upto 2 Lakhs.

Also, those having second homes and given on rent, from April 2017 onwards, the maximum loss one can claim from the house loan interest is also limited to 2 Lakhs, which didnt have any limits until the last year. 

Another exercise one needs to do, at this time of the year is also to get the Home Loan Interest Certificates from your respective banks, as you might need to submit them , while filing your returns, if there is a difference in the amounts, in the Provisional Tax Document and the Tax Certificate. 

If you have any queries, kindly put them in the comments section below.

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Smaller Savings Add up

Its always the smaller Savings which add up. when I mean small savings, its about putting those smaller amounts in a place, where, it will grow up to be a larger value.

Was reading this article on Quora and I thought that I should be sharing it.

1) Small purchases add up. In the place where I live, a coffee will cost about $4. Drink a coffee every day and you are dropping well over $1,000 a year on your coffee habit. That's the price of a vacation to a foreign country or a couple tailored suits. Make the coffee at home and save BIG!

2) The true cost is not what you paid today, it's what you give up in the future. I can spend $1,000 on coffee this year. Or, I could put that $1K in an S&P index fund and let it sit till I retire. If I could have earned say 8% annual returns and plan to retire 30 years later, my coffee habit this year reduced my retirement by $10,000.

Understand these basic concepts and you'll be able to to become much wealthier by making some simple, small changes to your life.

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1 Crore on Retirement

I have been getting some emails from some insurance companies asking me to invest into some of their funds/plans and become a crorepati when you retire.
First, I don't like to rely on insurance companies which sell ULIP only to gain the commissions to give you promises especially for your retirement fund.

The ULIP and mutual funds give the returns only on market conditions. Market goes up, you get a good return and goes down.. you know what that means. This is acceptable, when you can afford to take risks, but wouldn't be the only investment for my retirement plan. I would like to invest a bigger portion in debt funds when it comes to retirement, than on equity funds.

The given ad, said, invest 8000 per month and earn 1 crore. But do these people give guarantee on the returns. The disclaimer is always present there, that the returns are subject to market conditions.

Let's say, you invest 8000 per month in a FD and lets say, you still have 30 years of your working life. A simple FD with a 8% return would give you 11,745,213/-(1 crore 17 lakhs ) Offcourse, we will not always have 8% as the interest , it can come down or go up, but still an average of 8% is quite reliable over a long period of time. A simple investment of 8000 per month can do this wonders, why take the additional risk of market equity.
Nothing stopping you from taking risks, but its all based on your target's you want to achieve for your retirement.

Few examples of FD returns
30 years  5000 per month    73 lakhs after 30 years at 8% compounded annually
25 years  10000 per month   95 lakhs after 25 years at 8% compounded annually
25 years  10000 per month   1.29 Crore after 25 years at 10% compounded annually

FD's are something, which are guaranteed income, and the even in the worst of cases, there is no loss.

Before I conclude, couple of points

1.  FD's will never be able to make up for Inflation. But it will be a secured amount when you need it.
2. The interest earned on the FD's are taxable depending upon your tax slab.

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Your PF

Every time that you change your company, the HR will give you the document to withdraw the money or transfer it to the next company that you join. And we being we, the urge is to withdraw it, considering the fact that you are so pressed for clearing that long pending credit card bill, which has already absorbed huge amount in the form of 33% interest. Definitely, it makes more sense to clear off the high interest rates debts with these amounts which barely give 9% interest.
But hold on. Though the urge is there to withdraw and I know, almost everyone has immediate needs. But just make sure to keep the money handy for your retired life. Remember, now, you have a source of income and the PF money is meant to take care of you when you dont earn. Please remember that you dont earn a pension like our parents did, when worked for an government organisation. Yes, those are the perks that they enjoy , and we will not be.

So , in short, once you join your new company, please transfer the money to your new PF account in the new company. From what I last remember, the interest will be paid on only one PF account. So if you havent transfered it, there is quite a bit of chance that there will be no accumulation of the interest. But I am not sure, how the PF department finds out that, one has more than one account. Nevertheless, its our job to make sure, we have only one account.

Also, if you still dont have PPF account (Public provident fund), please open one. You can invest there as less as 2000 per year. And that account will earn a good return at the rate of 8 or 9% interest(the rates keep changing). There amounts are exempted from tax under section 80ccc. This is a great way to accumulate the funds for your retirement and also have the freedom to invest as per the comfort level.

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Cost of Appliances

We all know that each of the appliances/Gadgets/Vehicles that we use comes at a cost. The TV, the bike, the car and most importantly the mobile. Whats more important in today's world is the cost of replacing them regularly, with the advent of new models or features. Yes, we all love the new stuff and always love to do the shopping. But it only means we are spending more. Not that spending is bad for the economy, but I would prefer one self to use the money carefully.
Lets talk in terms of examples -
A specific mobile phone costs 12000/- INR. And you use it for 12 months. Which simply means that the cost of owning this mobile has been 1000/- per month. (The other cost being the variable cost of your mobile service bill, and I would leave that out in this discussion. )
Now, most people replace mobile based on their habits. Some in 6 months, some in 12 and some around 1.5 to 2 years time frame. Its not necessary that the mobile has stopped working, its only that one gets a tickling to buy a new one.
So the cost of mobile for a person using it for 6 months would be 2000 per month while that for one using it for 2 years would be 500/- per month. For every additional month that you use your new mobile, you will be paying a little less per month. Isnt that a great saving? There will always be new ones coming with fancy features. The trick lies in finding it, whether you really need it or its just for buying something new that one just swipes the card.
The similar habits applies for cars and bikes and so on for TV sets.
Just use them one more month.. at a time ..

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Simple Investment Rules

Contingency Plan and Savings

Always have a plan for your emergencies. They dont come to you giving you time to prepare. Its just that you need to be prepared for it.

Keep aside 3-6 months of your monthly expenses aside in a liquid investment. This could be Fixed Deposits.

Secondly,
Invest in yourself from day 1. If you are not doing it, then start today.

Reading various articles on the simple Investment tips, here is what I follow to take care of both these.

Every month I put in a fixed amount in to a Recurring Deposit. This also makes me to invest regularly into a savings plan and also create enough backup for emergencies

Preferably create these RD Account's which you dont use regularly and give in to your impulse purchases.
In the Bank where I have got an account created, I dont even have a Debit card.

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