The last day for action to save taxes is just round the corner. It is high time that you now take compute the tax liabilities and take necessary steps to reduce your tax liability. However, in this last few days, it is also very easy for you to get carried away and make some mistakes. In this piece, we will give some tips on what you should actually do along with a brief overview of the tax saving avenues...

Last minute tips:

• Calculate your taxable income first and the investments /deductions already made under different IT sections, especially section 80C.

• Don't rush into long term insurance products in a hurry. The primarily reason for buying insurance should be protection and not tax savings.

• Do not invest in NPS purely to save taxes. NPS is a long term commitment and the new taxation benefits announced will only be applicable in the new financial year.

• Invest only where you understand the product and feel a genuine need for the same.

Explore the following options to save taxes ...

1. Mutual Fund ELSS schemes: The good part is that your investment can be made easily in a product that has the shortest lock-in period of 3 years and very favourable tax benefits. The safe part is that there is no recurring investments or any sort of long term or future commitment. But one should understand that the investment will be made in equity asset class which may give volatile returns with a fair possibility of both good and not-so-good returns. It is an often recommended product by financial advisors and you should it a good look .

2. Term insurance plans: Term insurance offers high level of coverage for the lowest premiums. They are safer as the long term commitment is low and you get the maximum coverage for every rupee that you pay. However, choosing a term plan should be done with care and help of experts / insurance advisors. The process can be completed with payment of premium unless there are some medical tests required.

3. Health Insurance cover: This another popular avenue for saving taxes. Healthy young adults without any adverse medical history may still find this option available but one would need to hurry to buy the policy on time as it may take a bit of time.

Common Tax savings sections ...

Options covered under 80C / 80CCC / 80CCD

Arrival of a kid may be the most wonderful and joyful moment in any parent’s life. Along with joy this brings additional responsibility. Making your kid financial savvy forms an important part of modern day parenting.

Just as for any multistorey building it is important to have strong base, it is important for your kid to gain knowledge about finance and investment right from his/her childhood days to be financially mature & informed. Right from automobile to electronics to real estate to FMCG companies, all are targeting this segment as children play very important role in buying decision of their parents. Just as it is important to inculcate good values and virtues, it is equally important to focus on financial literacy for your kids. Making them understand about money matters and finance can help them build strong investment base right from early stage of their life, allowing them to reap benefits later.

Different kids at different age groups need to trained in different way. Let us try to understand how money or finance related matters can be explained to kids in different age group.

Kids in 3 to 5 Year Age Group:
Make them understand about basics of money. Very first thing which they need to understand is what is money and importance of money. Why money is needed to buy everything.

Kids in 6 to 10 Year Age Group:
Kids start going to school and start interacting with outside world. They get more involved with their friends at school. There are few very important lessons to be teach at this stage. Like making the kid understand difference between need and want, importance of savings, basic skills of negotiations etc.

Here you can prepare a chart and put all essential items like food and grocery purchase, milk, house rent, electricity, clothes, fuel, school fees etc in essential item circle called 'Need' section of the chart and other items like eating out, going to movie, buying toys etc in non essential item circle called 'Want'.

Even though Rakesh and Rajesh invest more money than Rajeev, their final retirement corpus is significantly lesser compared to Rajeev. This is the benefit of starting early and allowing the power of compounding to work in your favour.

Create 3 jars or boxes :
one for income, one for spending and last one for saving. Ask the kid to move money from income jar to spending jar whenever he wants to spend and transfer balance to saving jar.

Ask the kid to put whatever he/she earns on birthday celebrations, festivals like Holi and Diwali or through gifts in income jar. After spending on his/her books, stationary or any other miscellaneous items inculcate habit of transferring balance to saving jar. This will allow the kid to understand that we need to spend within our limits of income and positive balance should be left in income jar in an order to save.

Very important to make your kid understand about usage of ATM card. Importance of keeping the card and PIN safe and secured. Make him/her understand that ATM card is only one mode of withdrawing your own money from bank account. ATM machine is not giving you free money. Also open a savings bank account in kids name. There are many banks now a days which are offering junior account with basic banking facility like cheque book or ATM card.

Kid in 11 – 14 Year Age Group:
After making your kid financially aware about basic things related to money and concept of saving, now is the time to take things one level higher. At this age you can start discussing little more complicated but very important things with your kid.

You can start discussing with your kids about concepts of compounding. Importance of early start of investing in life to take maximum advantage of compounding.

Inflation:
Just as knowledge of compounding is important, knowledge of inflation is unavoidable. How inflation eats into the value of money and how it affects both investment as well as day to day life. Make the kid understand about why it is important for any investment to beat inflation to grow your money.

Usage of Credit Card:
Kids at this age are more exposed to internet and online world. Discuss about concepts of credit card, online payment and internet banking. Credit card is only mean to make transactions conveniently. Make your kid understand about not spending through credit card on something which you can not pay in cash later. One falls in debt trap if he/she spends beyond ones paying capacity. Discuss about high penalty and interest rates charged by credit card companies on late payment and how one's credit score gets negatively affected.

Also discuss danger of providing personal data online and not sharing confidential information like passwords and fraud e mails in name of lottery winning, free holiday trips etc. Not to respond to these type of mails by providing account number / ATM Card, Credit Card number or PIN.

Kids in 15 – 18 Year Age Group:
This is the time when kids start preparing for their higher studies. Once the kid decides on type of course to pursue, you can ask the kid to calculate total cost involved for the course across different colleges which includes not only college fees but also study material cost, tuition fees, hostel expense if college is in different city as well as commutation cost. Kids can calculate the entire cost of the course across various colleges, compare and decide on his/her own. Also discuss about concept of education loan and pros and cons of taking education loan.

Adult Kids 18+ :
These are grown up kids either still studying or about to join work force in few years time. There are two very important lessons at this stage :

• Importance of Insurance
• Importance of Taxes

Explain concept of different kind of insurance like life insurance (term plan), health insurance, motor vehicle insurance etc. The best way to make the kid understand the concept is to take a term plan and medical insurance in kids name, involve him/her at every stage right from comparing different plans to premium payment to understanding policy document. Put responsibility of paying premium on your kid if he/she has already started earning.

Also importance of taxes while making any financial decision. Simple concept from filing income tax return, the importance of filing return and impact of taxes on investment return.

Educating your kid on financial matters is an ongoing process. Unfortunately our education system does not focus on practical aspect of finance world at primary or higher education level. The onus is on parents to educate their kids about financial matters so that they enter the professional world fully prepared.

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "1043", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}

If you have been an active reader on personal finance topics, you must have heard of the FIRE movement. FIRE is an abbreviate for 'Financially Independent Retiring Early'. The movement is slowly gaining popularity among many young executives and professionals around the globe. In this piece, we talk about the thought process behind the FIRE movement and the things that one should be careful about.

Why FIRE?
Most of the executives today have been working hard in tough competition and are in the so-called 'rat's race'. The pay is not bad and most executives are earning well and maintaining a good standard of living. However, most of the executives feel a greater need for personal freedom and balance in life. This is the starting point towards FIRE. In brief, the following reasons can be cited which supports the FIRE movement.

• Good pay from at the start of the career > potential for higher savings
• Married couples having double income
• The uncertainty of the present job profiles in the long-term,
• increased work pressure and internal politics
• Greater opportunities for freelancing
• Rise and maturing of the start-up culture
• Longing for professional independence
• Social acceptance for new work culture /life choices

What does FIRE really mean?
Contrary to what one may perceive, FIRE is not retirement. It is about having the freedom to engage in work of your choice and at your terms. Most FIRE families have to work for money. They are not rich but have enough resources to live a modest life. However, the difference being that the money is not as critical as it was earlier. The families living the FIRE life may have some tough choices to make in their lives. They normally make big cut downs on discretionary expenses and live a modest life.

Steps to FIRE

• Make appropriate plans for pre and post FIRE life
• Work hard for last few years and save as much as possible
• Cut down on all unnecessary and discretionary expenses
• Cut down and eliminate all outstanding debt
• Settle down with your own house (optional)
• Build skills and knowledge required for life post FIRE
• Decide on the appropriate time and resources to make the jump

So when is the perceived right time for FIRE? Apparently, it is when you have adequate net savings to sustain you for at least a decent foreseeable future. This FIRE kitty should be adequate enough to generate enough earnings or cash flow to meet your essential life needs.

Most of the above habits and behaviour related to saving and expenses continues after FIRE. However, the difference now is that the regular pay-cheque is replaced by inconsistent cash flows. Some people may slowly end up doing great on freelancing side, early adequate income so that their FIRE kitty is not exhausted but instead gets getting bigger.

Risks to FIRE:
There are many professionals in India who today start thinking of taking a break from work and/or starting their own business. Ideally, 40 or even 35 years is the new target age for such professionals for building some kitty to start on their own. While it all sounds great and nice, here are a few things that deserve considerable rethinking...

• You / your family has to survive at least the next 30-40 years without regular income!
• There are huge uncertainties on health/medical front which can wipe out your kitty.
• There are personal sacrifices you may need to make for things like personal holidays, cars, demands of your children, entertainment expenses and so on.
• Family support and understanding is crucial for a happy life after FIRE.
• Freelancing and running own business successfully is not going to be easy and will take lots of hard work.

However, everything boils down to what you desire from life and how well you plan ahead. Nothing is impossible and today not everything is measured in monetary terms, though it still remains as important as ever. If you or your children are serious of FIRE, we would suggest that you talk to your advisor first and make a thorough plan.

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "1215", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}