In today’s world, Personal finance plays a key role in deciding the assets and liabilities for a person and efficiently managing the expenses. The most essential aspect of planning finance is raising a self budget. Shaping up our savings and expenses within the income that we draw helps us live a contended life.

The different components taken into account for planning finance are savings account, investments in stock market, usage of credit cards, consumer loans, insurance policies, retirement plans and managing of income tax.

A person should always keep a tab on the assets and liabilities that he or she possesses. This will help chart out expenses and in turn help in calculating the ability to take up new responsibilities. Expenses that prove exorbitant or unnecessary can be excluded. It will prove fruitful to inculcate the habit of saving. Financial planning is highly necessary to meet inflation and other urgent expenses. One should set aside funds to meet unpredictable or unavoidable expenses like a medical emergency.

It comes as no surprise that an increase in our income results in increased income tax liability. Planning personal finance will help us direct our income towards savings and manage our income tax in a significant manner.

Help can be sought from the various financial planning agencies or advisory agents in making investments and security market planning. Adequate protection and low risk should be ensured in the investments being considered. Insurance policies should be taken up when an asset is bought. This will cover the risk when unforeseen damages occur (insurance policies also offer tax benefits).

Pre-planning is vital while making huge investments like a house or car. To obtain the best deal, extensive research should be carried out and quotations from various vendors should be taken before making the investment.

Caution and planning while applying for loans will prove to be a lighter burden. These days, loans are easily available at competitive interest rates. However, the loan amount should be decided based on the income of a person and hidden charges should be considered if any. This will indeed reduce the stress of paying up the loan.

Planning for retirement is necessary to understand how much it might cost to live after retirement and to come up with a plan to distribute assets to meet shortfalls. This can be taken care of by wise investments in pension plans.

Personal financial planning will help you save your best for your rest!

This is a brief article on selection of mutual funds which also provide tax benefits.

Equity linked Savings scheme, commonly referred to as ELSS are widely marketed as a good tax saving tool.  Often marketed as providing tax benefit upto Rs. 30,000/- and giving returns over 30%.  Ever looked into the fine print and rationale behind the glossy words?

3 points to bear in mind when choosing an investment (investment or investment scheme)

1. Never invest just for tax benefit – It should be an add-on benefit.  Invest to secure cash flow for your future.  What investment you choose should be driven by how long you wish to have the investment and what you intend to use the invested money (education, marriage, retirement etc.).

2. Read, ask and learn on how the returns will be achieved – it is possible that you may end up with significant loss on the ELSS investment.  You should see where your money goes.  All mutual funds will have something known as a prospectus (available on their website).  This will list broadly where they will invest your money.  Be sure to read these.  You don’t have to be a finance expert to know that you are taking a bigger risk if all your money is going to real estate than if it were spread between real estate, infrastructure, bio-technology etc.

3. What happens if you suddenly need the money – if it is a tax saving instrument it is likely to have a minimum of 3 year lock-in.  For other investments, you can technically get your money any time, but you will need to be sure that you can make a return on an early exit.  One good way is to always choose mutual fund schemes that have a huge corpus size.  What this means? – assuming you earn Rs 20,000 a month, you borrow Rs1,000/- from the bank and lend it to a friend.  If your friend does not pay up on time, you can probably repay the bank from your 20,000 salary.  But assuming you had borrowed Rs.18,000/- and lent it your friend who does not pay up,  you will find it difficult to repay the bank loan.   Same with mutual funds; the bigger the size of the fund, the lower the chances of them having a liquidity problem as they will be able to rotate their fund.

Its your money that you are investing.  So be sure you understand where your money goes.  This was you will both get returns and secure your money.