You never know what’s in store for you! For instance, we cannot control outside events like recession. No matter what you do, it is going to affect all of us in some way or other. However some simple tips like optimum asset allocation, debt reduction, keeping emergency cash will help you tide over the rough times, without much damage.
Check your expenses and adhere to your budget
People tend to forget that good times don’t last forever. If you spend lavishly during good times and continue the trend without adapting to changes in circumstances, very soon you will land in financial trouble. Hence to ensure you lead a consistent lifestyle, always draw out a budget and ensure you stick to it religiously. E.g. if you have allocated Rs 500 per month towards your entertainment expenses, don’t spend a rupee more than Rs. 500. It will not only help you handle your finances better but will develop your willpower by delaying instant gratification.
Don’t rely on future income
Depending on future income in order to spend today, is one of the biggest mistakes we make. This has been evident during a job crisis, where youth racked up a huge credit card debt and took heavy loans. But when the salary cuts and job losses occurred, they were unable to pay off their debt. E.g. if your monthly income is Rs. 20,000 always ensure you spend well within Rs. 20,000 as pay cut or job loss may land you in trouble.
Reduce your debt
Got a bonus? Then pay off any loans that you have taken. If you have multiple loans, first pay off the loans with the highest interest rate, then the one with second highest rate and so on. E.g. if you have a credit card debt, personal loan and home loan, first clear off the credit card debt, then personal loan and finally home loan. For this you will have to plan out your debts and then go on following it systematically and steadily. It will not only save you money but will also give you mental peace.
Opt for strategic asset allocation
Though experts have consistently stated the importance of asset allocation, many investors tend to overlook this fact and invest only in the hottest asset. But remember market conditions do change and what is hot today may be out in the cold later on for a long time. So ensure you divide your portfolio amongst stocks, bonds, gold and real estate to get the maximum returns from your portfolio. Though your portfolio may under perform for some time, it will end up protecting you when the things get rough.
Keep emergency cash
You never know when a crisis can strike your family. Death, disease or job loss can end up upsetting your investments. You might be forced to sell your investments though they have not been given you any profits. Hence it is advisable to keep at least 3-6 months of your household expenses aside as emergency cash.
Sort out Your Finances
Agreed, keeping tabs on and handling your finances closely, may not sound like an interesting job, but it is a necessity. However you can reduce the boredom by putting a system in place. Once it is done, you can spend a few hours a month on this job. E.g. on Sunday, you can spend 1-2 hours to find out how your investments are performing, reading up any news concerning them or talking with your financial planner about the performance of your investments.
Plan in advance
One of the reasons many people land in financial mess is that they don’t plan their finances ahead. So it is imperative to plan your finances properly. Find out your current position, where you intend to go and set up a feasible plan to achieve your objectives. Unforeseeable events may occur and make you stray away from your plan for a short time, but ensure you get back on track at the earliest. Always remain focused and keep a watch on your progress. E.g. you are saving to buy a home and have started investing for the same. But 6 months after you started investing, you lose your job. If that happens, stop your investment, get a new job and again restart your investment.
Invest systematically and gradually
The biggest problem is that most people don’t bother saving till it is quite late. So they don’t have any money to fall back on in case of emergency. Hence it is essential to start small, but regularly and then increase the amounts later on. E.g. you can start a SIP, in which a particular sum is debited from your bank account and invested in a mutual fund. Or you can open a recurring deposit, which acts like a SIP, initiated by the bank. All this will occur automatically, so you have no excuse not to save.
Be in charge of your investments
The markets have crashed, the realty is down in dumps. What do you do? Sell off? Wrong. Unfortunately, this is what most investors do. In this situation, it is advisable to hold on to your portfolio as selling will just end up causing you financial loss. Instead increase your emergency cash reserves and periodically review your asset allocation of your portfolio.
Set a realistic outlook
The days of stocks giving a return of over 40% are over. While it is possible some of them may give you those types of returns, it is setting yourself up for disappointment if you keep your outlook very high. Instead keep a practical outlook of earning 12-15% returns from your investments.
A pre approved personal/home/car loan is usually offered by banks to people who have a clean track record of loan repayment history, like in my case. You get it even if you had pre closed your earlier loan amount. Some banks pre approve a loan to its own customers even if they had not taken a loan at all based on certain conditions like the cash inflow and transactions in their salary accounts or the repayment track in case of credit card holders. However, in both cases pre approved loan offers often come with a time limit to accept them.
Rahul recently got a pre-approved loan. He shares his experience with us.
” Last week I got a call from my bank informing me that I have been pre approved a personal loan for Rs 2, 00,000! What?! Only recently I had successfully paid off a personal loan for 2 years! And this pre-approved loan will be at a lower rate of interest and will be disbursed within the next 48 hours. And all I required was resubmit some documents. Perfect and simple! Or is it?
I am sure I am not alone here. Most of us out there at some point had similar calls from your banks! But should we jump when such an offer is made to us? Or is there anything else that we need to check before taking it up? I decided to find out. I rang up my financial consultant and he said that there are several points to be considered before taking up a pre-approved loan.
What is a pre approved loan, eligibility and types of pre approved loans
A pre approved personal/home/car loan is usually offered by banks to people who have a clean track record of loan repayment history, like in my case. You get it even if you had pre closed your earlier loan amount. Some banks pre approve a loan to its own customers even if they had not taken a loan at all based on certain conditions like the cash inflow and transactions in their salary accounts or the repayment track in case of credit card holders. However, in both cases pre approved loan offers often come with a time limit to accept them.
There are two types of pre approved loans: unsecured and secured. Unsecured pre approved loans comprises of mainly personal loans and credit cards while the secured ones are the car loans, and even home loans.
So what you need to know if you get a pre approved loan offer from your bank?
Do you need it?
First ask yourself if you really need the loan at all. There are times when people take the loan just because it was offered to them when in reality there was no necessity. Avoid a loan if you do not have a really pressing situation ahead of you! Remember, every loan pre approved or not comes with a cost. And at the end of the day it is you who will have to bear it.
Why a pre approved loan is good!
Generally, the time taken for processing of pre approved loans is much less thus reducing the risks of you missing out on the chances of getting that new car or your dream house. In-principle approvals for home loans from banks are a boon to people who have not identified a property yet. This will let the customer know how much the bank will give him and search for a property accordingly.
Decide the right loan amount for you!
If you decide to take up the pre approved loan the next thing to decide the exact loan amount you would need. Usually, the banks decide the pre approved loan amount based on your previous loan repayment records or your account balance, transactions and credit card transactions. And here you are in a better negotiating position. Having said that it becomes all the more important for you to decide on the loan amount based only on your requirements and not simply for the reason it is being offered to you.
Check the interest rates!
In the case of pre approved loans the interest rates will be slightly lesser than the rate of interest offered to other customers like in my case. My bank offered me an interest rate that was 2% less than what was offered to other customers. However, this alone does not qualify for taking up the loan. There could be other banks out there that offer the same loan amount for a cheaper 16-18%. So it is important to check the loan offers from other banks before signing on the dotted lines.
It is also important to clarify with the bank about the nature of the interest, particularly for home loans, whether it is fixed or floating.
You would still need the documents anyway!
Often, the conditions for a pre-approved loan are more or less the same for a loan you may approach your bank for. Even for pre approved loans banks might require some documents except in the case of some in house bank customers and require the prior checks in case of home and car loans. Sometimes even a small discrepancy in the documents could be enough reason to cancel the pre approved loan.
So the next time you get a mail from banks about a pre approved loan remember to look for the above details. After all, it is your money!”
Leave Travel Allowance (LTA) is granted by the employers to the employees as part of the remuneration to provide for travel expenses incurred during the year. Leave Travel Allowance also covers such expenses of the spouse, children as well as dependent parents and siblings. However, there is a restriction. The allowance is restricted to two children born on or after October 1, 1998. There is no restriction on the number of children born before this date. Expenses that Leave Travel Allowance covers Leave Travel Allowance (LTA) only covers travel expenses incurred on travelling with your family within the country; i.e. exemption can only be claimed if it is within the country under Section 10(5) of the Income Tax Act. Some other expenses which cannot be included are expenses on hotel rooms, sightseeing, food, etc. Another condition is that you must make sure to opt for the shortest possible route, only then can you claim expenses. There is also a restriction on the fare component. Tax exemption can only be claimed for economy class air fare, first class AC rail fare or first/deluxe class bus fare. However in the absence of public transport, you can hire a taxi or rent a car and claim for expenses equivalent to first class AC rail fare.
Can the entire amount be claimed as an exemption? Yes, provided that the entire amount has been spent according to the tax rules specified under LTA laws.
Can you claim Leave Travel Allowance every year? While you can claim LTA every year for which you will be taxed, LTA exemption can only be claimed twice in a block of four calendar years.
Does claiming LTA in alternate years mean that the two year entitlement gets added together?
It does. If you are entitled to an LTA of Rs.10,000 per year and do not utilize it for the the first year it is carried forward to the next year. In the second year you can claim the entire amount (Rs.20,000) as tax exempt provided you spend it according to the specification in LTA tax laws as detailed above.
Carry over concession for Leave Travel Allowance Leave Travel Allowance (LTA) comes with a carry forward feature. You can carry forward your Leave Travel Allowance in the situation that it has not been used. It can be brought forward and claimed in the first year of the next block.
No travel proof required for Leave Travel Allowance (LTA) Supreme Court announces that there is no need to submit proof of travel in order to claim Leave Travel Allowance. Employers while assessing the travel allowance claims, do not need to collect proof of travel to submit to the tax authorities. Though it is not mandatory for employers to demand proof, they still have the right to demand documentary proof depending on its policy. The announcement by the Supreme Court has only moved the responsibility from the employer to the employee, the assessing officer can still ask for the employee to provide details of travel.
Can both spouses claim Leave Travel Allowance?
If the husband and wife are benefiting from Leave Travel Allowance benefit in their respective offices, then they both have the option of claiming Leave Travel Allowance exemption from their employers. They can also get the benefit of four journeys in just one block. There is no need to make sure that they do not travel twice in the same year. Also, as long as they adhere to the definition of family members, it does not matter whether they choose to take the same family members or different ones. Family in this case consists of spouse, children, siblings and parents who are dependent on you. In the case of kids who are born on or after October 1, 1998, the exemption will be restricted to only two surviving children. The only exception for this is if after the birth of the first child, the second conception results in multiple births (twins or triplets).
If both spouses travel together, can they both claim Leave Travel Allowance simultaneously?
No, both spouses cannot claim Leave Travel Allowance simultaneously. Leave Travel Allowance cannot be claimed twice for the same journey.
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