It's time to hold your money to higher standards

The 10-day guide to making more money before the year ends

Women have been equipped with all manner of survival skills to face the big bad world. Juggle 1,350 tasks in a day with our supercomputer brains. Run in stilettos. Communicate entire conversations across a crowded room with no words, only raised eyebrows. Though, a crucial one has been missing for too long – ensuring financial security and money management.

Most of us have had to learn these things by ourselves. Googling all the silly questions we’ve ever thought off, like, ‘how does the stock market work?’ ‘where exactly do I file my taxes?’ and ‘I’m only in my 20s, do I really need to buy insurance?’

Over 92% of 100 well-educated working women in diverse fields stated that it’s the male members of the family who take all financial decisions, according to a 2017 Economic Times report. A large number of women take charge of their finances when they’re pushed into it in dire situations, with no other options.

We believe in always being prepared. Most of us have budgeted so much over the past 2-3 months that we almost feel like pros now. “If I wear Nani’s saree for Ranjan’s haldi ceremony, then I can spend double on Seema and Kapil’s wedding gift.” You’ve even accounted for how much you had to save each month for the past year to be able to fully enjoy the big NYE Goa bash with your friends.

Now, instead of breaking your head over making New Year’s resolutions to save money and start financial planning, we say get ahead of the game. Because, honestly, how many resolutions have we actually managed to stick to beyond the first few enthusiastic weeks?

It’s time to tie up loose ends and plan for the year to come. Aparna M, Portfolio Manager at PeakAlpha Investments, recommends a different kind of advent calendar. One containing nuggets of expert financial advice to help get your piggy bank in order.

“Put these on your soft board and tick off these tasks as you accomplish them – what’s in your bank account, what’s the outstanding amount on your credit card, noting down financial excesses (care packages you sent yourself during the lockdown and the loungewear you gifted yourself as the WFH treat). It’s not the most exciting job in the world, but someone has to do it,” says Aparna.

While Chanel fell short on the big promises their advent calendar came with, we come bearing the gift of good financial advice. Now is the time to take stock before digging into your stocking on Christmas day.

December 16: Get an expense tracker app

Let’s not get carried away and start simple, says Aparna. Getting an expense tracking app can help you better understand your spending habits, like how much of your salary goes towards bills and rent, and places where you could cut down, like your evening cold coffee at Barista.

Aparna adds that the “micro-tremors of guilt you’ll get while entering your expenses on the app” will set you on the right path towards smart spending and saving.

December 17: Know thy payslip

When it comes to our monthly salary, we know by now that what we get in hand isn’t the same as what may have been on the offer letter. The official salary/payslip from the accounts department of the organisation is what gives a complete breakdown of your monthly payment. “Your gross salary comprises of multiple components, a few of which can help you avail of tax benefits,” says Aparna. These components can vary from one organisation to the other, depending on what is part of your package. 

Employee’s Provident Fund (EPF) contributions, meal coupons, House Rent Allowance (HRA), Leave Travel Allowance (LTA), for example. “Your net salary is arrived at after deductions like your contribution to EPF and Tax Deducted at Source (TDS).”

She advises reaching out to the payroll team to better understand how they arrived at the monthly amount of tax being deducted from your gross salary. “Take a close note of the components that will help you avail of tax benefits. This will come in handy later this month when you tackle your taxes.” 

December 18: Build a liquid debt mutual fund as a parking spot for your emergency cash

Whether you’re thinking about taking a sabbatical or are dealt a medical emergency, we all need to have a rainy day fund at hand. “The engineer may need a career break, the intelligence agent may twist an ankle chasing villains. Having a robust rainy-day fund will help you tide through job transitions, career breaks and garden-variety emergencies,” says Aparna.

She explains that liquid debt mutual funds are one of the safest mutual funds in town “due to the high credit quality, short tenure assets they invest in. They are also superior in tax efficiency to FDs (fixed deposits), steel dabbas hidden inside almirahs and a savings account. Interest income earned on FDs is taxable at your tax slab whether the interest is paid out or reinvested. In contrast, gains on a liquid debt fund are not taxable until you sell the investments. Emergency funds are meant to remain invested till an unforeseen event arises. Parking them in FDs results in greater tax expenses over the long run.”

Liquid funds also don’t have a lock-in period, whereas in an FD, if you need to pull out the money before the committed time period you pay a penalty.

December 19: Get health insurance, apart from what your employer provides you

There are some organisations in the country that provide health coverage to the employees and their dependents. But you shouldn’t get dependent on that either, because, in all likelihood, that health insurance ceases on retirement.

The sooner you get health insurance the better, age-wise. Getting the right policy at the right age means avoiding the possibility of rejection based on any conditions you may develop as you get older. Aparna also adds that the sooner you purchase health cover, “the earlier you will be able to complete waiting periods for pre-existing illnesses (if any).”

This is one of the moments where reading the terms and conditions can’t be scrolled past. You need to investigate in detail the nitty-gritty of what is and is not covered and how long you have to wait according to the provider.

“For example, many health insurance providers cover PCOD-related treatment costs subject to a waiting period. This means that PCOD-related expenses will only be covered after you continue with the policy, after the specified waiting period (24-36 months in many cases). Do take note to enquire about permanent exclusions – these are health conditions that the insurer will never cover,” says Aparna.

December 20: Create an estimate of the insurance you require

It has been a grim realisation, but the past two years have taught us the importance of medical coverage as well as properly planned life insurance. Especially if you are the sole income earner in a household with dependents.

Aparna uses the DIC-E framework to explain how you can arrive at and create an estimate of the life insurance that you’d require. Honestly, it perplexed me at first too.  But go through it a few times and do your best to follow along. She breaks it down for us with an example, explained below:

Adding up (1) Debt and liabilities outstanding + (2) (Income/X number of years to retirement) + (3) College funds your kids will incur if they were attending college today (4) Existing life insurance cover, savings and college fund already accumulated, will give you an estimate of the additional life insurance you may require.

Let’s assume you have ​​₹35 lakh of outstanding home loans, ₹7 lakh in car loans. You earn around ​​₹20 lakh per annum and plan to retire in 25 years. You plan to send your son to law school. The one that you have your eyes on is charging a fee of ₹50 lakh for their UG program today. You have a plot of land that your parents have gifted with the intent of funding your child’s college fee. This is valued at around ₹10 lakh today. You have a life cover of ₹2 crore from your employer.

D : 35L + 7 L= 42 L

I: 20L X 25 years = 5 crore

C: 50L

E: 10 L+ 2 crore = 2.1 crore

You will approximately need a life insurance cover of ₹3.82 crore to bridge the gap in your life insurance requirement. How did we arrive at this?

(D + I + C) – (E). Using the above example, that is: (42 lakh +5 crore + 50 lakh) – (2.1 crore) = ₹3.82 crore

“The DIC-E framework only gives you an approximation of your life insurance gap. Seeking the help of a financial advisor can help you arrive at a more accurate estimate of the cover required and the tenure over which the cover is required. This can help you optimise premium costs. You can also use any of the risk management calculators available online,” adds Aparna. Also, remember to assign appropriate ‘Nominees’ to your life insurance policies to ensure that the pay-outs reach the people you planned.

December 21: Picking a tax regime – is old really gold?

The end of the year holds a different meaning for different people. For some, it’s about weddings, for others, it’s family time over Christmas. But for pretty much all of us, it’s ITR filing season.

Now most of us have a choice when it comes to the tax regime depending on what fits best, the old or the new one at the beginning of the financial year. This can vary from year to year. And if you feel you made the wrong choice in April, she adds that you can switch it when you file your tax returns.

We said most of us have a choice, because as Aparna explains, if you get income from a business, consulting service or freelancing then, you don’t get to pick every year. “If you opt for the new regime, it will continue to be in place for the future years as well. However, the rules do allow you a one-time switch to the old regime in this case.”

Explaining the difference to help us make an informed decision, she says, “The new tax regime has fewer exemptions and deductions (nearly 70 lesser than the old regime) but offers lower tax rates. The old regime levies higher rates but has more exemptions and deductions. If your income has multiple components eligible for tax exemptions and you incur expenses that can help you claim tax deductions, you may be better off in the old regime. This is when your best friend in the payroll team can help you. Or else, use an online calculator to get an estimate.”

December 22: Spot the tax deductions you can claim

The deadline to file your taxes is coming up at the end of the month. If you’re going with the old tax regime then there are exemptions and deductions you can avail of. 

A few include life insurance premiums and contributions to ​​Employees Provident Fund. Health insurance premiums for you, your partner and your children are eligible for rebates of up to ₹25,000. As well as charitable donations made to certain organisations.

However, Aparna adds, “Do not set out on a tax-saving overdrive and bloat your portfolio with products you do not need. Tax saving should only be a bonus you claim while meeting a financial need like wealth creation (for example, investing into tax-saver equity mutual funds) or risk management (for example, buying life insurance). During this exercise, you may find that you do have a tax gap under Sec 80 C but are sufficiently insured. Then, investing in a tax saver equity mutual fund or contributing to a personal provident fund account are options worth considering.”

December 23: Identify the debt-equity allocation ideal for you

This is the day you identify the debt-equity allocation ideal for you.

Aparna says that the rule of thumb recommends holding a minimum of (100 minus your age)% in equity-oriented assets. That is, if you’re 60 years old, then 40% of your portfolio should be equities.

Look at your financial assets and see how close or far off you are. “If you are an anxious Annie who steers clear of equities, inflation is likely to eat away at your wealth. A reckless ram of an investor who concentrates her portfolio in equities alone is in for a turbulent financial journey. A financial advisor can help you arrive at the debt-equity split that fits you the best and pick the right instruments to invest in.”

December 24: Set up your monthly investments

You’ve done the expense tracking, gone through your payslip to understand your salary break down and created a list of recurring debits towards loans. With better knowledge of your earning and spending in a month, now it’s time to figure out how much to invest and build a financial assets portfolio.

“Try to invest a minimum of 30% of your income. Set up monthly investments (via systematic investment plans aka SIPs) into a set of debt and equity mutual funds, so that money is automatically debited from your account every month,” says Aparna.

SIPs are a good low-risk option for investment if you’re a first-timer. You invest a small amount every month, similar to a recurring deposit in the bank. Once you set up a SIP, the system does the work for you. You don’t need to remember to invest every month. And you can start with an amount as small as Rs 100. Through SIPs, you get to harness the power of compounding (earning returns on your returns).

December 25: A financial advisor is the best gift to give and receive

Think about the health of your wealth and think of good financial advice like medical advice — only trust licensed professionals.

Your lovely bank relationship managers may suggest certain investments to you, but they may not be qualified financial advisors. Their incentives may also not exactly line up with yours. The best approach is to sign up with a certified advisor who can guide you objectively on your investments.

As Aparna says, if you have a friend who may benefit from professional financial guidance, gift her a financial planning session. If you are that friend, gift it to yourself.

“Look at the firm’s vintage and track record, the quality control measures they have in place and testimonials from their clients. Identify how personalised or boilerplate their services are. Understand how the individual or firm will be charging for their services. Industry accolades, a base of happy clients who have been with the firm for a long while, a robust internal control system and a team of seasoned financial advisors are good indicators.”