4CrucialFinancialPlanningTipsForSalariedIndividuals(31Jan2012)

Formostsalariedindividuals,financialplanningbeginsandendswithtaxsavinginvestments.
AsaregularreaderofPersonalFN,youknowthere'smuchmoretoitthanthat.
Whilesavingtaxisaverygoodthing,thereismuchmorethanyoucandoasasalariedpersontohavea
completelysuccessfulandstressfreefinanciallife.
Let'sseewhatthe4mostimportantthingsareforsalariedindividualstokeepinmindatalltimes,startingof
course,withmakingthemostofyourtaxbreaks.
1.SaveasMuchTaxasPossible
Therearemanyoptionsavailablethatwillhelpyousavetaxandalsogrowyourwealth,letsbrieflygo
overwhatthemainonesare:
a.Section80C
EverybodyknowsSection80C.
It includes your EPF, PPF, tax saving mutual funds, premiums paid for life insurance, ULIP
premiums,repaymentofhomeloanprincipal,5yearBankFDsandmore.Formoreinformationon
eachofthese,readourarticletitledTaxSavingUnderSection80C
b.BeyondSection80C
ThisincludesSection80D(healthinsurancepremium),80CCF(infrastructurebonds),80E(Eisfor
education,soifyouhaveaneducationloanforyourselforafinancialdependent,thissectioncan
help you), HRA (House Rent Allowance living on rent? it can help you save tax), LTA (Leave
TravelAllowancetakenaholidaythisyear?thiscansaveyoutaxtoo),MedicalReimbursement
(uptoRs.15,000peryearisreimbursedsohaveyourmedicalbillsreadyasproof),andmore.For
moredetails,readourarticletitledEasyTaxSavingTipsBeyondSection80C
Taxsavingcangoalongwaytohelpingyoubuildwealth.
EvenRs.25,000savedintaxeseachyearfor20yearswillgrowtoRs.25.61lakhs.
(assuminginvestmentsearna15%perannumreturn)
2.ProtectYourFamilyAgainstLossofIncome
Chancesareyouarethemainbreadwinnerinyourfamily.
Considerwhatwouldhappenifonedaytheincomestopped.
Thiscouldbebecauseofjobloss,oranaccidentduetowhichyouneedtostopworkingforawhileand
during which time you will incur medical expenses, or an unfortunate event in which you pass away.
Youneedtoprotectyourfamilyfromthefinancialrepercussionsofanyoftheseevents.
Nobodycancompletelyprotectthemselvesfromjobloss.Butwhatyoucandoisconstantlyupgrade
yourskills.Themorequalifiedandalsothemoreexperiencedyouare,theeasieritwillbeforyouto
takeyourpickofthejoboffersyouwillreceive.
Theremaining2factorscanbeinsuredagainst.
Ifyousufferanaccident,youcanprotectyourselfagainsttotallossofincomeifyouhaveaPersonal
Accidentpolicy.
APersonalAccidentpolicyisonewhichprovidesyouwithweeklyincome(insomecaseslimitedtoRs.
5,000perweekfor104weeks)incaseofanaccidentalinjuryresultingintemporarytotaldisablementor
death.Differentpoliciesofferdifferentcompensationamountsandeachpolicyshouldbereadcarefully
beforeanyoneisselected.This,inconjunctionwithenoughhealthinsurance,willhelpfootmostofthe
medicalbillsduringyourperiodofrecovery.Thusyouwontcompletelyloseyourincome,andalsoyou

wonthavetospendtoomuchonmedicaltreatment,asyouwillbeinsuredatbothpoints.
In the final case, where you pass away due to an unfortunate unforeseen event, your family will be
protectedifyouhadtheforesighttotakesufficientterminsurance.
3.KnowYourGoals
HereisabasicexampleofMr.A'sGoalCalendar:

Year Age

Goal

Amount
required

Assumed
Inflation
p.a.
Not
Applicable

FutureValueof
Goal

2012

35

ContingencyFund

Rs.5,00,000

Rs.5,00,000

2015

38

HousePurchase

Rs.1,00,00,000

10%

Rs.1,33,10,000

2030

53

Child'sHigher
Education

Rs.10,00,000

10%

Rs.55,59,917

2037

60

Retirement

Rs.5,00,000
p.a.

8%

Rs.6,90,28,321

Untilyouwritedownsomethinglikethisforyourself,youwillneverfullybeawareofwhatexactlyyou
aresavingfor.Onceyouhavethistableandyouknowallyourgoals,youwillhaveaclearsenseof
directionandpurpose,andwillbeabletoefficientlygetontracktoachievingyourdreams.
Different goals can have different rates of inflation, and in some cases you might need professional
assistancewithknowingyourfuturegoalamountandfindingouthowandwheretoinvesttoachieveit.
You might also need assistance with cash flow management. Your financial planner will give you a
holisticpictureofyourfinancesandgiveyouaclearroadmapofyourgoalachievementprocess.
4.UnderstandHowLoansWork
Therearegoodloansandtherearebadloans.Goodloanshelpyoubuildorbuyappreciatingassets
(homeloansforexample).Badloanschargeyouveryhighinterestandeitherdon'thelpyoubuyassets
atallorhelpyoubuydepreciatingassets(personalloans,creditcarddebtandsoon).
Loanscanbeagreattooltohelpyoubuildwealth,butbesuretousethemwisely.Predatorylendingis
whenabankloanofficialtellsyouthatyoucanaffordacertainhighloan,whenactuallyyoumightnotbe
able to. You as the loan taker are happy about being eligible for a higher loan amount because this
meansyouhavemorefundsatyourdisposal,butwhentheinterestraterisesandyourEMIgoesup,
youmightfindyourselfstrugglingundertheheavierburden.Onlytakeasmuchofaloanasyoucan
afford and always remember to have atleast 36 months worth of EMIs as part of your contingency
reserve,justincase.Also,tobetterunderstandyourselfasaloantaker,readourarticletitledHowTo
BuildYourWealthWithaLoan.
Conclusion
These4pointsarebothsimpleandcrucial.Followthemandyouwillbewellonyourwaytohavingahappy
and successful financial life. If you need professional assistance, feel free to call PersonalFN, we'd be
happytohelpyouplanyourfinances.