Health Insurance for children is Important

Health Insurance for children is Important

Nowadays everyone has realised the importance of health insurance. Awareness about mediclaim, critical illness, and personal accident is increasing. Every individual makes it mandatory to have a health insurance cover not only for self but also for their family. Insurance companies are coming up with family floater policies which cover not only man and spouse but also children.

Though most of the times children are covered with their parents under health insurance, a separate policy is not taken for them. There is a certain mindset that health insurance for children is not as important as for adults. However with the current lifestyle of the children, there are chances of them having more health issues than their parents.

Parents keep their children as their highest priority. They dedicate their entire life for them however when it comes to taking up a health insurance policy their thinking goes haywire.  Either the child is covered under a family floater with a very low cover or they don’t have a health insurance policy. Parents feel completely helpless when their child is ill that they go to any extent to cure them. The treatment cost for them can also be very high. Thus every parent should understand that health insurance is equally essential for the child as it is for them.

Health expenses are now touching the sky. A simple surgery for sinus or any injury caused due to sports, etc, may cost anywhere between rs 20,000- rs. 50,000. Treatment for children leads to financial breakdown and stress if not covered well. Thus to control such situations in life one should buy sufficient health insurance cover for their kids. Many companies provide health insurance for children only. Also the family floater plan covers the child well if the policy cover is good for them.

A minor can be provided health insurance from the 91st day along with his/her parents. A child of age 5 and above can be provided health insurance separately. When one decides to buy health insurance for their children it is necessary to provide all medical history of the child,  as a few months old child may have health issues like juvenile diabetics, bronchitis etc. If one decides to purchase health insurance at a later stage when the child is in his teens it is very essential to produce facts whether the teenager is smoking, any pre-existing disease since birth etc. Once the needful information is provided only then the policy is given to the costumer.
It is suggested that you to purchase a health cover not only for yourself or spouse but also for your child/children. Also it is importance to take an optimum cover for your child as well. Premiumsfor health insurance policies are not too high & also have tax benefits, thus a good cover for your child is a must.

It is also essential to understand the policy, and become familiar with common health insurance provisions, including limitations, exclusions, and riders only then purchase it for your child. One should carefully read the documentsbefore buying a policy. Some might be having a time limitation of claim while others might be unsupportive of a particular required ailment in case of children. The policy terms and conditions document gives a list of covered ailments and the extent of coverage. Most of health insurance companies in india cover hospitalization, surgery, medicine, surgeon and other equipment charges. However it depends fromcompany to company.

With these points in mind, do adequately cover yourself, spouse & children medically!!

Govt considers complete makeover for insurance laws

Govt considers complete makeover for insurance laws.  

Discussion with IAI, officials of FSLRC’s working group on insurance

Mumbai: The government’s financial reforms panel is considering a complete makeover of the country’s insurance laws that would end the monopoly of state-owned Life Insurance Corp. of India (LIC), shift control of the government to the insurance regulator, and create a legal system to deal with any failure of insurers.

Following a discussion last month, the Financial Sector Legislative Reforms Commission (FSLRC) recently took up the recommendations of the Institute of Actuaries of India (IAI), the government’s supervisory body for actuaries, which if accepted, will change the face of India’s insurance industry.

The government set up the commission last year to rewrite and synchronize the financial sector legislation, rules and regulations so as to address the contemporary requirements of the sector, including insurance. The commission’s term ends in March.

In its discussion with IAI, officials of FSLRC’s working group on insurance, chaired by D. Swarup, chairman of Financial Planning Standards Board India, considered at least 20 areas of possible changes in laws both for life and non-life insurance.

It is likely to compile a final report in a few weeks, which will then need to be vetted by the parliamentary standing committee on finance before the laws can get amended. A copy of FSLRC’s communication with IAI and the latter’s recommendations to the commission is with Mint.

“LIC versus private sector insurers is an issue. The commission feels that exemptions are heavily loaded in LIC’s favour, which needs to be changed,” said L. Khan, president, IAI.

There are 23 life insurers in India with combined assets of at least Rs. 16 trillion. LIC is the largest with assets of at least Rs. 13 trillion alone.

FSLRC asked IAI if the present laws for state-owned insurers have an adverse impact on competition and how the issues involving government’s ownership in some insurers should be addressed. Existing laws exempt LIC from certain sections of the Insurance Act.

The actuaries institute recommended that capital and solvency requirements of LIC should be aligned with that of private life insurers and LIC should be restrained from using its policyholders’ money as solvency margin. For private insurers, solvency margin is met from shareholders’ money.

If the recommendations are accepted, the government will have to infuse a substantial amount to cover LIC’s future liabilities and capital needs. This, in turn, may not only slow LIC’s pace of growth but also reduce the government’s net income from the dividend paid by LIC every year on its surplus.

It was also proposed to empower the Insurance Regulatory and Development Authority (Irda) to regulate LIC’s investment norms and business conduct on par with private insurers. Despite Irda’s restrictions on insurance firms to hold over 10% stake in a listed entity, LIC holds above 10% in several companies. Even to protect policyholders from the risk of an insurer’s investment concentration, Irda has limited say as the government dictates the investments made by state-owned insurers to meet its own capital needs.

To address such issues, the regulator may also get the power to suspend or cancel the licence of state-owned insurers, including LIC, if the recommendations are accepted.

The commission is also looking at introducing resolution mechanisms to deal with any failure of any insurance firm—a legal system to protect the interests of policyholders and ensure financial stability.

FSLRC asked IAI if some form of deposit insurance or compensation scheme is required to protect consumers of failed insurance firms. At present, there is no specific law for such a scheme, which exposes policyholders of life insurers, except LIC, to the risk of losing money in the event of an adverse economic situation.

LIC Act extends a sovereign guarantee by the central government to LIC. Though, the extant Irda norms safeguard the interests of policyholders of all insurers and minimize the risks of losing money, a sovereign guarantee for LIC gives it a business edge over private insurers.

IAI suggested the creation of an Insurance Guarantee Corporation to address this issue. “Such a corporation could be created to at least partly bear the liability of policyholders in the event of failure of an insurance firm,” said Khan. But while creating a guarantee corporation, the costs incurred in paying the claims should be levied both on shareholders and policyholders, IAI said. The proposals, if accepted, will not only curb the risks for policyholders but also end the domination of LIC in the industry.

The proposals are aimed to end the discrimination of policyholders of state-owned insurers with that of private insurers. To achieve this, FSLRC also looked at the possibility of shifting certain powers from the government to Irda to avoid monopoly of any insurer in the industry.

FSLRC is also likely to revisit the current investment laws and suggest amendments to enable Irda to frame rules for agents’ commission, solvency norms, capital requirement norms, loans and advances by insurers, among other things. At present, these norms are largely governed by the Insurance Act.

IAI recommended enabling the regulator with powers to issue guidelines for insurers to invest in new asset classes such as real estate, derivatives, and asset-backed securities. It also suggested flexibility in not setting the investment management function for the unit-linked business in-house. At present, it is compulsory for insurers to have in-house investment managers for all their fund management businesses.

FSLRC is also looking at allowing insurance companies to invest a part of their funds in overseas investments. At present, overseas investments are allowed only in government securities of the UK to the extent of meeting liabilities of certain funds under an insurer.

Overseas exposures will allow a wider range of assets for investment diversification and access to potentially higher returns, IAI proposed. To enable such investments, the Insurance Act needs to be amended. If it is allowed, it will hold out prospects of better returns for policyholders, especially for those in unit linked insurance policies.

Key recommendations

• Empower Irda to fully regulate investment norms, solvency, limits on distributor compensation, share capital, divestment, dividend distribution and limits on loans and advances by insurers.

• Framework to achieve level playing field for both public and private sector players.

• Create an Insurance Guarantee Corporation to partly handle policyholders’ liability in the event of an insurer’s failure.

• Central government to infuse adequate funds to meet solvency needs of state-owned insurers, including LIC.

• Create legal framework for the regulator to force capital injection by shareholders, weaken the solvency rules and de-risk the business of an insurer in the event of a failure.

• Allow overseas investments by insurers, flexibility for insurers to not set up in-house investment management for Ulips, and allow investments in new asset classes such as real estate, derivatives and asset-backed securities.

• Abolish the two councils—Life Insurance Council and General Insurance Council—to restructure Irda.

• Align capital and solvency requirement of LIC on par with other life insurers in the private sector.

Financial Tips for Students

Source - blognbuzz

Once you finish your school and enter college you want to concentrate on your studies. But along with studies you have a new responsibility of handling your money. Till now you were given pocket money from your parents for your expenses but now since you have grown up you will have to handle your own money. You may still receive money from your parents but it is up to you how to spend this money.
Today there is a rise in the rate of inflation and things are becoming more expensive then before. So it is time you must learn the difference between needs and wants. Many college students do not know how to handle their finances. Till now your parents fulfilled all your wishes from expensive clothes or shoes or mobiles but it is now your responsibility to value money. If you learn the basic principles of finance at this age then it will be useful to you in future, after all you are going to face financial issues once you are out of the college. So now is the time to learn how to handle money.

Students only think that money is to spend and they are always ready to spend it, but this is not correct, you must also think of saving and earning. Students also misuse credit cards and think that the credit limit gives them the permission to spend as much as they want. They are not aware that after all they have to repay the money back and that too with interest if they fail to make payments on due dates. Students think that banks want them to make use of their money but the truth is that banks are there to make money and they will take their money back anyhow. It is time to learn to value money and know the working of many financial products. The following financial tips will help college students to manage their finances and learn some rules of handling money:

1) Do not spend unnecessary:

Spending is a habit and once you get the habit of spending you will find it very difficult to leave it. So try curbing your expenses and try to spend less. Differentiate between necessity and luxury. Always keep in mind that it is very easy to spend but very difficult to earn. So buy things only if necessary.

2) Save more:

Saving is the main principle of finance. Without saving your financial plans will not work. Savings will help you in the time of emergency. Try to save on books, food, clothes and other items of use. You can refer to books from the library or borrow it from your friend instead of purchasing them, always eat home food this will save a lot of money, do not go for branded clothes or other accessories these good are very expensive. If you spend less you will save more and the more you save the more money you will have at your disposal.

3) Make a budget:

Try to make a budget and spend only from whatever money you have. Keep a record of all your expenses and maintain a book of records and write all your expenses in it. This will ensure that you do not spend on unnecessary things. Also write you incomes in form of pocket money, birthday gifts etc. See to it that your income is more than your expenses.

4) Do not use a credit card:

It is found that credit cards are the main culprit in increasing debt. Many people specially college students find it easy and convenient to use credit cards but they forget to make timely payments and thus fall into debt trap. At this age it is not good to be in debt after all you do not want to be burdened by things other than studying. Use credit cards only in case of emergency. If do want to carry lot of cash then try to use debit cards rather than credit cards. Debit cards will limit your purchases and in this way reduce your expenses.

5) Never borrow money:

Some students are of the habit to borrow money from their friends and never return it. This is a very bad habit as it will give you a bad name and people will never lend you when you are in real need of money.

6) Work from home:

Student can work from home or take up a part time job in their free time. In this way you will increase your income and you will know how hard it is to earn money. You can start giving tuitions or work in a restaurant or in a call centre for extra income. Make sure that you do not spend the extra income you earn, try to save this amount in your savings account, this money will be useful in  time of emergency.

7) Shop from places that offer discounts:

There are many places where students discounts are given so shop from places where these discounts are available. In this way you will save a lot of money.

8)  Pay your bills on time:

In case you have taken any credit then pay all your bills on time. If you do not pay your bills on time then the credit company will charge you interest with increased rate, this will be an extra burden to you.

9) Try to get scholarships:

College students having an excellent student grades or performance record may qualify for scholarships or grants  from colleges or various institutions. So try to get these scholarships and save money on fees and books. Grants and scholarships are a better option than students loan as you do not have to pay them back.
10) Don’t be with people who spend much, they will only make you spend more. So form your own group and teach them to spend less and save more.

11) Lead a simple life:

Do not waste money on unnecessary things, spend money only on the things which are really useful to you. Also reduce your travel expenses by using a cheaper mode of transport like buses, trains etc. You can always go for a movie or a night club but try and find out how you can enjoy them at a minimum cost.
The above tips will help college students manage money and learn to put their finances in order so they can focus on their studies rather than their wallet. College is the time when students learn from their mistakes and learn to manage their lives. So as far as possible learn whatever you can from your college life, if you face any difficulty then you can always approach your parents or friends or even teachers for help. Make sure you start your financial life after college without any debt and more of savings. This will make your life after college safe and secure and you can face the world more confidently. If you develop good financial habits in college then you are likely to have good financial habits for life.

Credit Card Tips You Can Use.

2 Credit Card Tips You Can Use.

 

 Do you want to know some credit card tips which you can use in your life ? In all probability you must be holding a ICICI, HDFC or SBI Credit Card and must be wondering how to use it effectively ! .  Credit card is used by almost everyone now a days and utilizing a credit card features is an art -I would say. It needs discipline, attitude and the right mindset to be used. However I came across 2 very good credit card tips, which were discussed by few readers on the comments section and hence this article bring forth those tips and tricks to you. These following tips are really good, but only for those who want to really squeeze out the benefit of their credit cards and not for someone who likes to keep it simple. Let’s see those credit card tips:

Credit Card Tips 1 – Making short term Fixed Deposits

Most people know that by the end of the month, they will get a credit card bill and they will have to pay a good amount of money towards it. Now imagine this situation – You will most probably have a good amount of money in your savings bank account which you know would be utilized towards paying off the credit card bill and you make sure that the money stays with your account. You don’t spend it or invest it anywhere because it already has a purpose and it also improves your credit score and report

Now the simple tip here is, that just see how much is your average credit card bill each month. It can be 10,000, 15,000 or 20,000 at times, but if you know that generally the maximum you get is around 20,000. Then instead of keeping that money in your bank account, you can just do a short term fixed deposits in that start of your billing period, so that instead of earning mere 4% in a saving bank account, it will earn some 7%. The idea is to create around 90 days of fixed deposit each month for your average credit card bill amount. So what will happen that from 3rd month, you will automatically get those FDs matured and you will have the money ready. I said 90 days so that the interest rates you get are better. I can see that my ICICI bank is giving 7% for 91 days deposit. If your bank provides good return in 30 days, better make 30 days deposits.

Important : Do this only if your bank provides the online facility of creating fixed deposits and you would like to get better interest for your money in short term along with eagerness to pay off your credit card debt in full every time. At time this can look like over optimization, but its up to you. Now if you like it, take it, else let it go.

Credit Card Tips 2 – Have two credit card with different billing cycle

You can get the maximum credit of 55 days on a credit card if you make the purchase in the start of the billing cycle and have a grace period of 25 more days (30 + 25 = 55). But you can not always make big purchases in the start of the billing cycle to get maximum credit, a lot of people make this mistake because they do not understand minimum balance in credit cards . So in that case the tip is to have 2 credit cards with two different billing cycles preferably having a gap of 15 days between them, you can use one credit card for first 15 days of the month and another one in the  second half. So for example you can have credit card A which has billing cycle from 1st Apr to 30th May and another credit card B whose billing cycle is from 15th May to 14th June.

So this way you can use the credit card A in the first half of the month and B in the second half. Note that though this involves 2 cards and requires a little tracking , but it will really help someone who uses the credit card a lot and would like to get benefit of maximum credit period almost all the time.

Why and How to invest money – Basics of Investment

Most people simply save and invest money because their parents or friends also do it, but do you know why you invest money or do you simply invest because you have enough money?? Before investing your money, you must know why you want to make this investment, i.e. the purpose behind your investment has to be very clear in your mind. There can be numerous reasons for you to invest money like to buy a new car or to buy a bigger house or to pay for higher education. Whatever the reason is, there should be a clearpurpose for your investment and you should invest accordingly.

Purpose behind the Investment

Once you have a clear idea that for what are you going to use the matured money, you will invest accordingly and for that stipulated time period. Suppose, if you want to save money to pay for your child’s higher studies, you know after how many years you need the X amount. According to that, you should invest your money and by that time you will get the required amount.

How to invest money


You should decide on how to invest money as per your needs. If it is a real need like to pay fees, you must invest in safe and secured investment instruments. If you want to invest for some of your desires like buying a big or luxurious car, you have an option to invest part of the money in some risky instrument and invest remaining money in safe instruments to create a balance.



Points to remember before investing money

Know why you want to Invest Money
Have a clear Purpose / Reason
Invest according to your needs
Differentiate your investment by separating your needs from wants
Needs: Safe and Secure Investment Instruments
Desires: Safe + Moderate Risk Investment Instruments


If you want to fulfill some of your desire in very less time, then you may have to take more risk and invest entire money in high risk investment instruments or combine high risk and moderate risk investment instruments. But remember, while investing for short term, you are taking risk with entire money. In this case, either you will get very good returns or your whole money would also get lost. So, invest in these instruments only when you have no other option or you are a risk taker and want some quick money; no matter what will happen with your invested money.

These are some basics that you must follow while investing money to easily achieve your goals and desires on time.

Investment Options Available For Investing Money

There are many investment options available to invest money. While investing, you must need to be consistent and stick to your plan. Find out the different investment options as per your risk appetite.

The type of investment depends on the need and time horizon you have. If you want to invest for retirement, there will be different investment options, that has already been covered in Retirement Planning section, and if you want to invest for some other purpose like to buy a luxury car after certain number of years, there will be different ways to invest your money.

If you want to know, where you should invest your money or what are the investment options available, then here you will come to know about different savings and investment options you have. To invest your money, you should first understand your requirements and decide which investment options are suitable for you and your needs. One thing you must do while investing is to invest in different investment instruments and make a diversified portfolio. Have a look at the number of basic investment options you have, to invest and grow your money.

Safe Investments:
Savings Account
Fixed Deposits (Certificate of Deposit)
Government Bonds
PPF (Public Provident Fund)
Post Office Schemes  NSC, KVP, MIS and others

Moderate Risk Investments:
Company Deposits
Mutual Funds
ULIPs
Gold
Property

High Risk Investments:
Stock Market Trading
Forex Trading

Business Investments:
Consultancy Business

Money Making Hobbies:
Stamp Collection
Rare Coins
Wine

How Parents can help you to save tax

How mom and dad can cut your tax


Right from birth, parents are always there to protect you. Now even when you feel independent, parents will be there to help you indirectly by letting you save more tax. They can bring down your tax liability in various ways, provided they are in a lower tax bracket or already retired. If your mom or dad falls in lower tax bracket, you can invest money on their name to save more income tax. It is not just income tax, but you may even earn higher interest as interest rate for senior citizens is usually more.

There are different ways by which you can save income tax by involving your parents directly or indirectly. Find below some of the ways to save more tax.



Invest in their name


You can invest money in your parents’ name if anyone of them falls under lower tax bracket. Every individual enjoys a certain exemption limit; e.g. in India, every adult gets a tax exemption of Rs 160,000/- ($ 3,600) every year. So, if you earn 160,000 or less, you do not have to pay any income tax. You can transfer some money to your parents’ account and invest in their name. It is not just limited to investment in banks; you can even buy shares and save 15% short term capital gain tax if the basic exemption limit has not been crossed.

Pay rent to your Parents


You can surely avail HRA exemption if you live with your parents. You can pay rent to them, but remember rent received will be taxable for your parents and the property must be registered on their name. So, if your parents fall in lower tax bracket, it will surely be helpful for you to save some tax.




Minimize losses in share market and save capital gain tax


As you know you can offset your short term losses with short term capital gains; but what if you have long term capital losses. You can not offset long term capital losses with long term gains or short term gains, so it is a complete loss of money. But if you will involve your parents, they can help you offset these long term losses against a gain from other assets such as property, debt funds, etc. and carry forward unadjusted loss for up to 8 financial years.

If you had bought some shares that are making loss in long term then you can make your parents buy these shares through off-market transaction. Off-market transaction is a private deal where no securities transaction tax is paid and the sale should be at the market price of the shares. So, open a demat account for your parents and minimize your losses.






Health Insurance Policy


Though taking a health insurance policy is always recommended, but it also helps you to save tax. Your taxable income can be reduced by up to Rs 15,000 if you take a health insurance policy, and in case your parents are senior citizens, there will be an additional deduction of Rs 20,000 for health insurance policy. Even if there would be no extra tax benefit, you must take health insurance for your parents; after all they also looked after your needs when you were a child.


Above are the few ways to save more income tax by involving your mom and dad. So, never overlook your parents, they will always be helpful throughout your life.

Things to consider before taking a home loan

Know your financial gains before taking a home loan


Everyone who does not own his/her flat, always think of one question, 'Whether to stay on rent or to buy own house'. Everyone has different opinions, different calculations. Those who holds enough money, buys their dream house irrespective of any calculations. Some persons fulfill their dreams by taking a home-loan. So, if you fall in the first category it is good for you and go ahead to fulfill your dream. But if you are not amongst those lucky ones and planning to take a loan, then better stop for a moment and think again.

Some Questions and Calculations

Now, you must do some calculations and also check whether you are into your own business or working under a boss. In case you are a working guy like me, you never know when you may have to switch your job and relocate to another city. If you need to relocate, you will be having two options:

- Stay on rent in another city and continue your home loan

- Sell your home and buy a new one in another city

For the option one, ask yourself, can you really afford giving away rent along with your home loan? If answer is yes, that’s really great and you must be living a happy and comfortable life. But, I believe most of the persons would not be able to say ‘Yes’. So, only option left with them is to sell off their home, but now you are not very sure how much money you will get for your home and in the recession like situations, you are likely to get much less price than you would have paid.

Now let us take a scenario where no such circumstances occur and you stay in your house for around 20 years even though it is quite unlikely to happen if you are in a job.

Suppose you have bought a house worth Rs. 4,000,000/- ($80,000) in India and took a loan of Rs. 3,200,000/- ($64,000) for 20 years at 12% interest rate.

Initially you have paid Rs. 800,000/- ($16,000) from your pocket for down payment plus some charges for Stamp duty and registration charges. Total will add up to Rs. 1,160,000/- ($23,200).

As per 12% rate of interest, your EMI would be more than Rs. 35,000/- ($700).

Total EMI amount after 20 years will be more than Rs. 9,600,000/- ($192,000).

In India, you will get tax exemption on home loans, so you can save around Rs. 2,000,000/- ($40,000).

Initially you have paid Rs. 1,160,000/- ($23,200), so if you will calculate loss of interest at 8%, you have lost around Rs. 4,240,000/- ($84,000).

This means your dream house has cost you Rs. 11,840,000/- ($236,800).

Are you sure you will get the same amount after 20 years or so?

Home Loan v/s Rented house

Now consider if you have been on arented apartment/flat with rent of Rs. 13,000/- ($260) per month. Every year rent increases by 10%, then you will be paying Rs. 7,400,000 ($148,000) in 20 years.

Initial deposit you will be paying is Rs. 25,000/- ($500).

Tax benefit you would be receiving on house rent will be Rs. 1,550,000/- ($31,000).

Interest amount that you will be losing for 20 years would be Rs. 91,500/- ($1,830) on the initial Rs. 25,000/- deposit.

So you would end up spending Rs. 5,941,500/- ($118,830) on rented house.

Now compare the amount you have spent:

For your own house: Rs. 11,840,000/- ($236,800).

For rented house: Rs. 5,941,500/- ($118,830).

On rent, you got nothing after 20 years, but you have your own house if you will buy one. Extra amount you have paid is Rs. 5,898,500/- ($117,970). This is the effective cost you paid for your home, seems to be a fair deal if you will get this amount after 20 years. But wait and look for another calculation.

EMI you paid: 35,000/-

Rent Paid: 13,000/-

Difference: 22,000/-

This amount you can invest monthly and can earn interest for 20 years.

So if you will invest the difference amount, you can invest some amount for 12 years and after that rent will be around 35,000 same as your EMI for home-loan. So if you will calculate the returned amount after 20 years, it will be somewhere near to Rs. 6,500,000/- ($130,000).

This is the amount that you will get with 100% surety without any risk even if there is another sub-prime crisis or so and now you may use this amount to buy your own house which is not 20 years old with less tension of getting relocated to another city at this age after 20 years. Another option you will be having to start some business with this amount and earn millions. What I will suggest is if your home-loan EMI is exceeding by 50% or less than your monthly rent, then you better go with home-loan and buy your dream home. Otherwise some one has truly said “Cash is King”.

Simple financial tips to retire early!

A normal retirement is known as superannuation. It is an event where on completing a certain age in the services of an organisation an employee is due to move over to spending life peacefully. Early retirement occurs when an individual retires before the required or generally accepted age of 58 or 60 years. Early retirement is possible for those who have saved a large enough corpus to take care of larger than usual number of years in the retired life.

The emphasis of this article is retiring early and enjoying retired life. This reduced employment tenure to support a larger post-retirement period requires an added confidence, a strong asset base and trusted income stream to enable the right decision making. Also, there should be some vocation to be pursued for fruitful utilisation and prestige during retired life.

The following are the three arrangements which need to be ensured before venturing out to retire early:

1. Accumulated corpus and wealth created

The sufficiency of the corpus for an enjoyable post-retirement depends on the length of such expected period and the extent of monthly expenses. Also crucial are the expected inflation, including lifestyle inflation, and the commensurate return expected from investing corpus. The emphasis is on striking a critical balance between the withdrawal rate from the corpus and an adequate rate of return on the corpus.

2. Management of corpus

There should be a robust and diversified asset base. A second house ensures a good market-linked income stream and a healthy appreciation in the asset along with tax benefits, if a loan is availed to buy the second house. A prolonged retirement period of around 35 years requires financial assets which provide an inflation-beating return.

An optimum asset allocation and an effective monitoring of the same in consultation with experts, usually Certified Financial Planner(CM) professionals who are trained in this aspect, ensures the protection of a sustained desired income stream.

3. Commencement of a new career

After taking an early retirement one can pursue an alternate career of choice. The time engagement, social networking and pecuniary aspects along with an image and reputation in society are other benefits. Managing a proprietorship firm or a partnership firm is the most effective way of such engagements. Taking up consultancy and advisory services or freelancing can also be explored on fee and commission basis.

One aspect that comes forth as a result of the above observation is the importance of health insurance. If health insurance is taken at an early age it will serve the purpose as well as the employer benefits would cease to be available earlier than normal retirement. Some other types of insurance such as accident, disability and critical illness cover must be taken to protect the retirement kitty.

Life gets more difficult as one gets older, thus it become imperative that if one is going to live longer s/he must start planning for it right away. Retirement planning is a relatively simple exercise which requires investing discipline and regular monitoring. However there are some important points which should be considered while planning for retirement.

1. Start early

If one wants to retire early, one has to start planning for it early. It is most practical to start at a young age, as soon as a person gets in to employment. A person has higher risk bearing capacity to enable her/him earn suitably higher returns. The effect of compounding does wonders to accumulate a sizable retirement kitty with the small streams of savings invested.

2. Set clear retirement goals

Oneshould be clear about one's expenses in relation to the income earned. The expenditure post-retirement and the lifestyle that one would like to maintain will give an idea on how much money is required as corpus on retirement and what quantum to be invested periodically at an expected rate of return.

3. Be disciplined

Since retirement is the most distant goal, the other short-term goals might take precedence and one has the tendency to dip into retirement savings for fulfilling other goals.

3. Approach a financial planner

A certified financial planner or CFP professional will help to identify the goals and suggest strategies to achieve them. The plan once made needs to be monitored periodically to ensure that it is moving in the right direction in the face of changing market dynamics. Such professionals are adept at taking all factors into account while crafting a wholesome financial plan, the retirement planning being an integral part of the same.

If one is able to follow all the steps mentioned here in a disciplined manner over the desired working time with the help of a financial planner then one can sit down and relax enjoying the sunset years.

Is Insurance an Investment Option?

A friend of mine over a phone asked me about insurance and whether he should invest in LIC’s xyz insurance scheme? This question comes to me many a times and I always suggest them few of my articles where I have shared the answer in bits and pieces but today I will answer this question with all the possible options and outcomes.

Let us begin with a very simple question which is why a need for insurance. The answer lies in any combination of the following options:

1. Investment
2. Tax Benefit
3. Insurance Benefit

I am sure your step towards insurance is guided by permutation and combination of above three options. Let us take each one of them one by one.

Investment

People make a mistake of investing in insurance for variety of reasons. I see many people give a very silly reasons like it makes them more systematic to investing on a regular basis and some have good genuine reason like they want a good solid lump-sum amount after an elongated time frame for some cause like marriage or child’s higher education…

No matter what your investment objective is, it should not cost you much and returns should be inline with other investment options available at your disposal. I am sure there will very few who would disagree on this and those who disagree are likely to be the insurance agents. 

Now ask for yourself. Does your insurance investment satisfy the above criteria?

I don’t think so. Why? Because insurance as a whole has a cost of being insured as well as many other administrative charges which a normal investor is unaware-of. If you know the charges you will feel like killing yourself for it (Pun Intended). For majority of policies it is close to 20% of the premium amount.

Tax Benefit

The next category of people who invest in insurance is tax payers. Many fall into the trap of Insurance as an option to save tax. I have couple of questions for them:

1. How much of your initial investment is actually invested?
2. Which funds your policy invests into to get returns they quote?

The answer to first question is always close to 80%. This means out of one lakh of your investment you only invested 80,000.

The answer to second question is they list me few funds. I can invest in similar to those funds directly or choose even better than those funds. If you have an insurance policy which invests in few selected category of funds why don’t you select those funds on your own and save 20k Rs. If you want me to suggest few good funds for 20,000 I will give you 50% discount as well. 

So next time someone asks you about insurance as a way to save tax don’t forget to ask him the two questions and then tell him bye-bye.

Insurance Benefits

So what if you need insurance? Go for Term Insurance. Ask your broker to get you a term insurance. Nothing more nothing less. If he is one among those brokers who suggest products based on what commission he will get, then you can be rest assured he will not get you the Term Insurance. He will suggest you lot of products and even compare them how bad is term insurance for you and may go ahead to add few misinformation. He will even tell you that you will be paying the premium without any return but the reality is here you are paying the money knowingly and in other policies you will still be paying the same amount but unknowingly.

Again going blindly for term insurance is not what I advise but go for an all possible combination and calculation. Let us say that you go with term insurance coupled with some other investment. Consider all your expenses and see which one gives you maximum benefits with least possible expense. You will see that most of the time it will be non-insurance product that wins.

Final thoughts

Insurance is something where you can live poorly so you can die rich and investment is something where you can build your wealth. Both cannot go hand in hand and so invest wisely. Share your thoughts in comments below.

Understanding the difference between Income and Wealth

Have you ever wondered why your salary is called income and not wealth and if you are a businessman, then your profit is called income and not wealth. Well my question is not in accounting terms but in Financial Planning terms. Well let us understand the difference between Income and Wealth from Financial Planner’s perspective.

Difference Between Income & Wealth

Income is something with which you maintain your life style. For example, with every month’s income, we maintain our existing lifestyle and not increase it substantially.
But if you were to sell a property which you were holding from years, you find that you can afford something which you could not afford with your income. Now in that case, you have created wealth and that wealth have substantial effect in increasing your life style.

Now when we invest, do we look for income creation or wealth creation?

Obviously, you will say that we look for wealth creation and not income creation after understanding the difference between income and wealth. But mind you that wealth creation is a very BORING process. Wealth creating takes time and you need right products to create wealth.

Think of few wealthy persons you know and look at the time they must have given to create that wealth. Now-a-days, we see that farmers are getting wealthy by selling their lands which they earlier used to cultivate. But then you look at the time they have given to create such wealth.

You probably will have n number of examples of people who have created wealth in Real Estate. But do you know many persons who have created wealth by investing in Financial Asset? You may not think of many. But let me ask you that don’t you know Mr. Mukesh Ambani or Mr. Ratan Tata or Mr. Azim Premji or any other rich businessman that you know in your vicinity. They all have created wealth. Now tell me which real estate Mr. Ambani owns? Must be an absurd question for you and you probably don’t know about it.

But what you know is that Mr. Ambani owns shares of Reliance or Mr. Azim Premji owns Wipro’s shares and the wealthy businessman you know may own 100% share of his business.

What do I really want to convey?

If you find your investment exciting and you are having fun, probably you are not making wealth. We don’t make wealth out of equity because, we look at equity as income creating tool. Buy Reliance at 2000 and sell at 2100.
Now financial instrument that makes wealth is equity and you understand equity as exciting investment that goes up and down every day. And those financial instruments which create income, we make them our BORING investment FD, NSC etc. How many of you look at your Fixed Deposit daily or your PPF account balance or your RD that you have in your post office.

But you want see the value of your mutual fund investment regularly, keep watching your equity portfolio as if tomorrow you need to sell it to marry your daughter.

What is Insurance – Investment or Expense?

What is Insurance & why we need Insurance is normally misunderstood by Indians. Most of the time, when we ask any investor about his investment portfolio, he/she invariably lands up saying that we have investments in some sort of insurance policy in LIC, ULIPs, Endowment Policy, Money Back Policy etc. In fact, over the last 50 years or so, LIC has taught Indians everything other than insurance. We all understand insurance as Tax Saving Instrument, Investment Tool but do we understand Insurance as Insurance. You must be surprised by our sentence, but that is the hard core fact of life.

What is Insurance?

It is a contract between the insured and the insurance company whereby the insured financial risk is covered by the insurance company. The risk can be of your vehicle, property, legal etc. So effectively, you pass on the risk to the insurance company and they charge you a nominal sum of money for taking that risk which is called  Insurance Premium.

Why Insurance?

It is said that Rama, Krishna, Bhishma and Buddha, knew the time when they would leave this world. To put simply, each of them come to live with their disciples with a mission or set of responsibility to fulfill. Does any one of us know when  something will go wrong with us and whether that time our responsibilities to fulfill. Does any one of us know when we something will go wrong with us and whether that time our responsibilities would be over or not? We all know that in life unexpected is always expected. Our life is full of uncertainties with lot of goals, short term goals, long term goals, known goals – unknown goals. We are all born with some responsibilities to fulfill…..but we do not know how much time we will get to fulfill those responsibilities.

What if anything goes wrong to us,  who will provide financial security to the family. Who will fulfill all the dreams that you would have  thought for. This is where insurance can help you. Insurance is one of the greatest inventions  in the field of personal financial products. But it becomes fatal to financial life and costly once you end purchasing a wrong insurance solution.

What Happens in Real Life?

The answer to this lies in 2 questions “why did I buy this insurance” and “what product I bought”. Typically you buy insurance product as investment and not insurance. That is why we say that Indians have actually not understood insurance in the right sense. First of all less than 5% of the Indian have insurance policy and add to this, out of those who are insured, the average life insurance cover is less than Rs. 90000/-.

We all understand insurance as an investment and land up buying EXPENSIVE Product.We all buy Endowment Money Back. ULIPs etc. Now when you buy an expensive product, you will actually be the loser and the manufacturer and the middlemen will be the winner. Is it not? All one need is to have a simple Term Insurance Policy/ Term Life Insurance Plan.

Mixing Insurance & Investment

Mixing insurance and investment is something we should totally avoid. When your insurance agent chase you, does he sell you insurance products? Or does he offer you investment opportunities and tax- saving schemes? In 99 of the 100 cases, agents don’t sell pure insurance. The insurance agents are driven by the first year  commission that they get and they are hardly bothered whether or not it is really right for you or not. In fact, that is the reason, why most of the investors we meet, say that they don’t see their agents after first premium. They make heavy commission by selling the product. Now we don’t have to explain that the commission that they make is actually deducted out of your investment and it could be as high as 70% of your premium.

Insurance is an Expense

Let’s try to answer the question through a analogy. Do you know that the world’s tallest building Burj Khalifa at Dubai, which is 828 meters high and has a foundation of 320 meters below the earth level made out of concrete and stainless steel. This means that to see a masterpiece you need to invest in its foundation. And we all know foundation has no visibility but it is a major part of cost. So any expense which gives a foothold and act as a security towards unforeseen circumstances, is worth spending.

Similarly is life insurance. We all must buy a simple insurance even before we start thinking of investing for future. Understanding insurance as an investment or mixing insurance & investment is not a wise decision.

11 Basic Financial Tips For College Students

As a college student, you understand and value the importance of your physical fitness and emotional well-being. But are you as fiscally fit as you are physically and emotionally? It may be time to learn "fiscal fitness" now for a lifetime of financial wellbeing.
Fiscal fitness means practicing smart money management techniques. Decisions you make about handling your money before and during college can have a huge impact on your future. Before making major financial decisions, educate yourself about options and be consistent in making informed financial decisions. Learning good personal finance skills now can help you reach your goals and find success sooner. Your life goals are important, and we want to make sure you have the money to make them a reality.
• Organize your files. Creating a paper and/or electronic filing system will make paying your bills on time and meeting deadlines easier. Record keeping also helps avoid potential disputes-disagreements regarding whether the terms you agreed to with banks, stores, or friends have been upheld including timing of payment and amounts. You'll also want to keep records for tax purposes.
• Make a budget and stick to it. A budget is just a self-imposed guideline for how much money you can spend and what you can spend it on. You will be amazed at how much farther your money goes when you have a budget. Life is unpredictable, so don't forget to allocate money for unexpected expenses in your budget.
• Buy used books. Many students and their parents are shocked to learn how much textbooks cost. Most campus bookstores sell used books that can help reduce this cost. You might also save money by buying or renting textbooks online.
• Leave your car at home. Cars cost more than just gas money. Don't forget about insurance, parking (and parking tickets!) and repair expenses. Walk, use public transportation, and/or ride a bike. You may also want to arrange a carpool with friends if public transportation isn't available.
• Watch the ATM fees. They can add up quickly. Look for a bank with free ATMs near your school.
• Choose the right meal plan. An unlimited plan may be tempting, but you might be satisfied with a less expensive plan. Also, if you've paid for a meal plan, be sure to use it! You're just paying twice if you eat out somewhere else.
• Save on snacks. If you can, avoid buying snacks at vending machines or convenience stores. Stock up at your local grocery store and keep them with you during the day to avoid more expensive and less healthy on-the-go options.
• Consider all the costs of living off-campus. Many students like the idea of trading dorm life for their own off-campus apartment, only to realize that there are more costs involved than they realized. Aside from rent, you will probably have utility bills and grocery expenses, at a minimum. You may also need to pay rental insurance and property maintenance fees. So before you decide to move off campus, learn what other expenses you'll be responsible for, in addition to rent.
• Use student discounts to your advantage. It's common for movie theaters, concert halls, restaurants, insurance and travel companies to offer steep discounts with a student I.D. Just ask!
• Start saving. A few Rupees here and there can make a big difference later in life. Saving and investing your money puts your money to work for you. If you have a job, pay yourself first. Have your bank automatically deposit a set amount from your paycheck into a savings account.
• Keep life in balance. Money management is important, but it's only a means to get you where you want to be in life. Strong values, good friends, and a solid education should all be part of your plan for success.

10 easy ways to save money

Saving money doesn’t have to be agonizing. There are lots of ways to reduce your costs and rein in spending that don’t require a lot of sacrifice.

What it will take is some effort and time. This will include calling retention departments, shopping competitor pricing and prioritizing your time to cut down on fast food or coffee runs.

“There is a tendency for people to stick their heads in the sand when it comes to really reviewing how they spend their money,” said Jeffrey Schwartz, Executive Director of Consolidated Credit Counseling Services of Canada, Inc. “A few simple changes to a person’s spending habits can save thousands of dollars a year without a huge disruption to their quality of life.”

These tips can help you save a bundle.

1. Just ask

The saying ‘if you don’t ask, the answer is always no’ applies to saving money. Whether it’s speaking with the retention department of a service provider, or asking for a discounted hotel rate, vocalizing your desire to save money and pay a reduced rate can go a long way.

Companies are driven to provide customers with positive experiences, hoping to retain future business. While it’s rare for a company to voluntarily offer a discount, they often have the wiggle room if asked.

And don’t be shy about looking cheap. According to a 2011 survey by Consumer Reports, people who asked for a discount usually got one. More than 80 per cent of survey respondents who bargained over apparel or jewelry received a discount, as did around 70 per cent of those who bargained over appliances or electronics.

2. Steer clear of spending triggers

If you’re an impulse shopper, steer clear of areas or stores that will entice you to make an unnecessary purchase. For many, this includes browsing online retail stores, or simply strolling around the mall.

If you’re an emotional shopper, avoid going to your favourite stores when you’re in a funk. You may end up buying something simply for its ‘retail therapy’ value.

3. Comparison shop

You can save hundreds of dollars each year by comparison shopping your services and asking for a better price from your service provider. Last year, I reduced my phone and television bill by $23 each a month by speaking with Bell’s retention department and changing my telephone plan.

To do this, I called several other companies, including Rogers, to get prices on their television packages. Armed with this knowledge, I called Bell to negotiate a better price.

By bringing these competitor prices back to our service provider, we reduced our television price from $44 a month to $30 a month.

It also turned out I was only using half of my monthly phone minutes. Given this, I changed to a 500 minute per month plan and reduced my phone bill to $42 from $51.

This same approach applies to a number of services, including insurance. When your car and house insurance is up for renewal, don’t be quick to sign on the dotted line. Take the time to call other providers, and see what price they can offer. Taking this information back to your current provider will motivate them to match or beat the quoted prices. Shopping insurance prices may take a few hours of time, but the savings will be worth it.

4. Cut your hydro

Home energy costs can really add up if you’re not careful. You can cut your lighting energy cost by 15 per cent each year by simply replacing your light bulbs.

According to Toronto Hydro, the average home has 30 light fixtures that consume close to $200 worth of electricity every year. Replacing five bulbs with Energy Star-qualified compact fluorescent light bulbs in areas that require more than three hours of light a day saves approximately $30 a year.

Also invest in a programmable thermostat, which can reduce heating and cooling costs by up to 10 per cent when properly set.

With summer heat just around the corner, fans are also a great use of energy and can help keep your bills down. If you run them at the same time as the air conditioner, you can raise the temperature setting by 2°C, reducing your energy use by at least 10 per cent.

5. Avoid late fees

One of the easiest ways to save is to avoid late fees and penalties. Set up pre-authorized payments for your bills to make sure you pay them on time. If you have a credit card that earns reward points, pre-authorized credit withdrawals will let you earn points and pay your bills on time.

If you are late making your credit card payment one month, you will pay $23.75 on a $1,500 balance, considering a 19% interest rate. This will continue to compound over the year and add up quickly.

Don’t forget to review your bills each month to check for billing errors.

6. Go on a credit card cleanse

If you’re scared to open your credit card bill each month, it may be time to put away the plastic. Based on your budget, take out the amount of cash you’ll need for the month and put it in envelopes for your various expenses, like bills and groceries. Having a set amount of money to spend on these items will help you avoid splurge items and not go over budget. When you wean yourself back on credit, you will have a better sense of your budget and how much you can spend.

7. Do regular car maintenance

It is often less expensive to regularly maintain your vehicle than pay for costly emergency repairs or maintenance. In fact, changing your oil regularly can add an additional 0.5 kilometres per litre of gas and replacing dirty or clogged air filters on older vehicles can improve fuel efficiency by as much as 14 per cent. Follow your suggested maintenance schedule to take full advantage of efficiencies.

8. Get rid of your landline

With free, online services like Skype, the need for a dedicated landline is becoming increasingly obsolete. Cutting your home phone can save you hundreds of dollars a year, and you don’t need to sacrifice personal connections or time chatting with family and loved ones. A basic phone package costs more than a mobile connection. By cutting your landline, you could save some.

If cutting your landline isn’t realistic for you or your family, call your provider and make sure you’re on a plan that is the most cost effective for your needs. This is another opportunity to speak with your provider’s retention department and ask them to reduce your monthly bill.

9. Get paid to shop

A lot of people shop online for its convenience, with popular items including books, clothing and electronics. So why not earn money while you’re at it? Ebates is a site that lets you earn cash back on your online purchases. Four times a year or more, Ebates will send you a cheque for the money you’ve earned, or transfer it to a PayPal account. The percentage of cash back varies depending on the retailer, but typically ranges between three to 12 per cent.

Membership is free and there are lots of participating retailers.

10. Travel smart

Take advantage of websites like Hotels.com and Expedia.ca to save on travel. These sites rely on a surplus of hotel rooms and airline tickets to offer up the lowest rate possible.

If you’re looking to cut down on your restaurant bill while on vacation or road trip, bring a cooler with drinks rather than stopping at rest stations or restaurants. Also, don’t be afraid to ask for a discounted room rate.