How to save money wisely?
-Dr. Lalit Kumar Setia*
The value of money is known to the people who earn it by doing hard work. I can recall a night when there was a natural calamity in an area of my state, and people were unable to take cash out of their banks due to scarcity of cash because everyone was withdrawing cash to meet their emergency expenses and the cash became less in the ATMs.
Keeping money for Contingencies:
A wise
person always keeps an amount for meeting contingency expenses. It is required
to put aside an amount out of your earnings in cash form/saving bank balance,
to deal with adverse times of stress in life. The persons who do not keep an
amount for meeting contingency or emergency, lack their ability to deal with
adversity. The adequately planned money for contingent expenditure releases the
mind from financial stress easily. But sometimes, it seems that sparing money
for contingencies is a loss of 'interest' as putting that money in Fixed
Deposit or another investment option can make more returns than the saving
account.
How much money should I spare for meeting emergencies?
This is very important to
decide how much liquidity should be there to deal with your money matters in
life. There are people who can easily meet such adverse situations by using
credit cards as they keep multiple credit cards with them. At the same that
there are people with strong relationships and in emergencies, they can easily
arrange the money even if they do not keep an amount aside. The Financial
Advisors and Wealth Managers recommend keeping an amount equivalent to '90 days
money required for meeting basic requirements (food, cloth, shelter)' aside for
meeting emergent situations. However, for the people with age above 60 years,
the amount should be more and it may be equivalent to '180 days money required
for meeting basic requirements (food, cloth, shelter)'.
How much cash should be kept at Home?
Most of the banks offer
facilities to link the saving bank account with the Fixed Deposit account. A
person with such accounts or with internet banking can easily form a new fixed
deposit account. During the last course, a participant raised query about the
amount should be ready always to meet the expenses of emergencies if any, so
that more amount should not be blocked in an account with lower interest rate.
I would advise not to compare the amount put aside for emergencies with the
amount invested for long-term. Both amounts have their own purpose. The amount
kept separately to meet expenses of emergencies, should not be seen as returns
on investment or keeping in such a way to get tax benefits if any. The purpose
is to use it if any emergency occurs and that should be kept in mind
only.
Tax Saving:
To get tax-saving options, people usually consult various experts. The Chartered
Accountants, Tax Advisors usually guide citizens to use tax planning for saving
their income tax. I asked a Chartered Accountant how a company agree to pay a huge amount to supervise their accounts, he replied that with the help of his advise, the company save crores of rupees and then it pays him lacs of rupees. It means there is enough scope of saving money from being covered under taxes and the Chartered Accountants are more aware than the ordinary people.
Tax Planning:
Tax planning is basically an analysis of a financial
situation from the perspectives of provisions contained in the income tax act. The
purpose is to save tax by utilizing the provisions in the financial situation
in most tax-efficient manner.
The tax saving options and tax planning reduces the tax liability and
maximizes eligibility to contribute in increasing wealth. The income tax act
contains provisions of planning for reducing the tax liability but a great way
to save money from being covered under taxes is "to return to our
traditional culture" and start living together in joint families. Try to
build cordial relationships by giving gifts to persons in your blood relations.
Yes! there is no tax on money received from
relatives in blood relations. If you want to invest in equities or houses or
Fixed Deposits or other investments then the returns realized from such
investments will become more taxable in your hands thereafter in the hands of your
son/daughter or your spouse or parents to whom you can gift money first and
then invest.
One of the most prominent ways that can be adopted as the tax-saving option is to live together. The cost of living together becomes less and even
the business can also be registered as Hindu Undivided Family (HUF) which means
separate exemption of Rs. 2.5 lacs. The flow of cash and assets from 'higher
income person' to 'lower-income person' not only save taxes but also makes the
whole family strong enough to face critical situations of life.
The downfall in trust, humanitarian deeds, and
increase in selfishness with hiding money from others; not only create jealousy
in hearts but also invite thieves to harm you and your family. One should
adopt the following perspectives in his own interest:
(i) Retirement Planning:
After retirement, there will be fewer
sources of income and the tax will also become less. A person should get
benefits by investing in Public Provident Fund, Sukanya Samridhi Scheme,
Employees Provident Fund, New Pension Scheme, etc; to ensure wealth in his hands
even after retirement. With investment in New Pension Scheme, one can also
claim an additional deduction of Rs. 50000 under section 80 CCD(1B). After retirement, an amount of interest up to Rs. 50000 can be claimed as deduction.
(ii) Tax Loss Harvesting:
In the case of investments in stocks,
real estate, gold, and other fixed assets; if the holding period becomes more
than one year then profit or loss on sale of such items becomes Long Term
Capital Gain or Long Term Capital Loss. That can also be used to minimize the
tax liability.
(iii) Health Insurance:
The payment towards any health
insurance policy makes a person eligible to get a deduction under section 80D. He
should buy such plans to ensure the health safety of the whole family.
*Copyright © 2018 Dr. Lalit Kumar. All rights reserved.
This article is written by Dr. Lalit Kumar Setia; a renowned author and trainer. He completed his Doctorate in Commerce from Kurukshetra University Kurukshetra and MBA in Information Technology from GJU, Hisar. He also wrote two books, 15 research papers, and organized more than 200 Training Courses during his working period since 2006 in Haryana Institute of Public Administration, Gurugram. The article was published on 27th February 2018 and last updated on 18th November 2021. The writer can be contacted on lalitkumarsetia@gmail.com
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