Similarly, the post-tax returns from a fixed deposit that offers 7. There are other things you need to consider while deciding goals. Five financial mistakes you may regret later 3. Essentially, the investment vehicle should be chosen in line with your goals and time horizon. The medium-term goals should have a mix of debt and equity.
This is because debt will offer you the safety of capital since you need it in the short term, while equity has historically given the highest returns in the long term. This is a simple generalisation, but as you have just started earning and are not familiar with the investing territory, go for it till you are better informed.
Then take into consideration other factors like returns, liquidity and tax liability before choosing an asset class. For near-term goals, opt for recurring deposit, liquid funds, fixed deposit or short-term debt funds.
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For the medium-term, you could choose balanced funds and equitylinked saving schemes. Bengaluru -based Siddhartha Nayyar, 23, is learning from experience. On the other hand, year-old Dharma Teja is learning from observation. He is, however, accumulating funds for short-term goals and should shift it to debt as he approaches the goal. He should diversify into equity soon. Which investment should you pick? Consider the goal tenure, returns, taxation and liquidity before investing your hard earned money. However, it is important to brush up your tax awareness at the earliest.
Start with avenues that offer tax deduction of Rs 1. Then opt for investments that fit in with your goals and needs, or those that are being made by default. These would include premium spent on health plans under Section 80D, which is up to Rs 25, for self and dependants, and Rs 30, for senior parents. Another important thing is to calculate the returns from your investments after considering the tax.
So Palit should undersrand that gold ETFs will invite short-term or longterm capital gains tax. You can also save tax by negotatiating with your employer for a a taxfriendly salary structure. Low savings, high expenses. No other insurance. Still, most people confuse it with investment because of the products in the market that offer both. Life insurance The term plan offers a big cover for a small premium, but you do not get any returns.
Then, there are traditional plans, which include endowment and moneyback policies. These offer small covers for a high premium, and low rates of return.
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Finally, there are Ulips, which are marketlinked insurance plans with a lockin period of five years and provide a low cover for a high premium, but offer market-linked returns. At this point, the only life cover you may need is a term plan, but this too, only if you have financial dependants or large liabilities in the form of debt. Teja has a Rs 75 lakh term plan though he has no dependants or liabilities yet. Harshinder, on the other hand, has not bought any cover. Health insurance The broader categorisation includes the basic indemnity plan, which covers hospitalisation expenses, for an individual, and the family floater plan, which includes your entire family in a single cover.
So if your company insures you for Rs 2 lakh, buy an independent top-up plan for Rs 3 lakh as it will be cheaper than a regular policy. Look at the claim settlement ratio, hospital network, inclusions and benefits before buying a plan. It is available both as a standalone policy or as an add-on with life and health insurance. Typically a standalone plan will offer a higher cover and more flexibility. You can avoid buying it at this stage, but consider it in your 30s given the higher incidence of such diseases at lower ages.
Accident disability plans This is a plan you should buy when you start working because of the sheer unpredictability of life. It covers you against mishaps that can result in complete or temporary loss of income due to partial or total disability. Buy a cover for Rs lakh or one in accordance with your income and nature of job. Home contents plan Though you are unlikely to have a house at this stage, buy a policy for the contents if you are in another city, not with your parents. The premium for a Rs 5 lakh cover can be Rs 3, and will cover jewellery, home appliances, furniture, etc, against theft, fire and natural disasters.
Do you know which cover you need?
This is something beyond your control. What is in your hands is making the most of what the company is offering you. However, these too are not written in stone. Moreover, what constitutes the CTC will vary from company to company. All CTC structures include three main components—basic, retiral benefits, allowances and reimbursements. Other components vary. Also, benefits given in kind, for in-wages. This means that except stance, house, furniture and car, are sometimes part of the total pay. Some companies even include premium paid for group benefits such as health and accident insurance in your CTC.
You need to make sure that you are not losing out because of lazy salary structuring by some HR personnel. So customise your CTC according to your needs. Restructure the basic pay The basic, probably the chunk of your salary, includes basic pay, HRA and often dearness DA and special allowance. Apart from HRA, every component is fully taxable. An easy way to reduce tax liability is to cut basic pay and adjust it as perks or long-term benefits.
If you have a special allowance component, adjust it as a tax-free component. However, you need to weigh the pros and cons before tinkering with your basic. Also, if you want to apply for, say, a car or home loan in the short term, you may not want the basic pay to be too low. The DA will be taxable and the PF contributions are tax-free, but it will reduce your take-home salary. On the other hand, reducing the basic pay will mean a lower contribution towards retiral benefits, which may not be good in the long run.
Also, if you live in a rented house, recalculate your tax benefits on HRA before lowering the basic. Choose one of the following two ways to restructure the salary with maximum tax benefits.
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Increase in-hand salary Benefits such as leave travel allowance LTA , medical and conveyance allowances serve two purposes. One, they increase the net takehome salary. Two, they make the salary structure more tax-efficient. However, the limitation is that there are caps on most of these perks. For instance, you can claim up to a maximum of Rs 15, every year for medical reimbursements, Rs 26, for food coupons, Rs 5, as annual gifts and Rs 19, as travel allowance on a yearly basis.
Also, keep in mind that you will have to produce original bills and receipts to claim some of these expenses. So, make sure they are within the claimable limit.
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Carl Jensen, aka Mr. He and his wife Mindy Jensen you may have heard of her set a goal that they would be financially independent in days. Lo and behold, they beat their goal and have one of the most popular blogs in the space. Carl has been retired for almost two years now. Mindy Jensen, a. Not surprisingly, Mrs. Real estate will likely get you there faster. Index funds will likely be the safer bet. However, the wisest decision might be to invest in both. Speed up your timeline to Financial Independence, but do it safely with a combination of real estate and index funds.
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While he is very entertaining, I was almost thinking of skipping his presentation because I have no interest in starting a pop up business school no offense. However, I felt like a jerk not going, so I went—and I sat in the front row! He absolutely blew it away. Without a doubt, it was one of the most inspirational speeches I have ever heard. The good news is you can because you have decades left to do it. It only requires the ability to learn and to take action. Why not? So, contact your HR department and get your k set up. And put in at least the minimum to get the full match.
Some of the latter can be cut out. However you decide to track your money, remember to maximize your time.
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