Where does your monthly salary go?

Are you saving money for your future? If you want to, you must start by opening a savings bank account.

Our lives follow an almost similar trajectory as our parents’ did before us: we get a good education, secure a job, get married and have a family, raise our children and retire in peace. These are the larger goals in life. The smaller goals are about the little things: going abroad for a family vacation, buying an expensive electronics appliance once a while, doing things for our parents.

But whether a goal is large or small, you require money to make it come true. Proper financial planning will help you create sufficient funds for the future. And the first step in this direction is taken by opening a savings bank account.

Why you need a savings account

One of the most helpful habits to inculcate is the savings one. It requires tremendous discipline and focus to save money every month, especially in the face of emergency expenses. But saving money every month holds you in good stead for the future: you can pay for a variety of needs and secure yourself against penury. Saving regularly also reduces the habit of overspending. Also, you need to deposit the saved money in a savings bank account so that you do not end up spending it by mistake and you also earn returns on it (through interest paid by the bank on the residual funds).

Start by budgeting and saving money regularly

Set six monthly targets for yourself, basis the goals you wish to accomplish. For example, if you want to take a foreign vacation in six months, find out how much the flight tickets and accommodation will cost. Now break this sum down into six parts: you must save this much money every month to achieve this target.

Similarly, you might wish to hit a certain mark in your savings so as to invest that corpus in a fixed deposit or a mutual fund. Whatever your reason, you must begin by opening a savings account.

Using the savings account

Once you open your savings bank account, ensure that you deposit a certain sum of money in it every month. Also deposit any additional money that comes your way from a gift, increment at the office or an annual bonus. But the saving must be made first, before monthly expenses get in the way. Imagine, if you start by saving Rs 5,000 per month, you will have an extra Rs 60,000 in your savings account at the end of the year.

Budget 2016: A roadmap for progressive rural development

The Union Budget 2016 charted out a clear vision statement for the progress of India’s rural regions. We take stock of some key announcements.

Budget 2016-2017 was observed by many as an exercise in carrying forward and implementing some of the reforms announced in the previous budget. However, this financial year’s budget took a significant departure to focus on farming, agriculture and the country’s rural areas. Several significant announcements in Budget 2016-2017 were devoted to these areas, and if implemented correctly and efficiently, should boost India’s agriculture and rural business landscape to great heights.

In a nutshell, the following were key announcements for the rural areas as outlined by Budget 2016-2017:

1. 1 Mass welfare: Priority to be given to funding initiatives aimed at rural families. These include primary education, two wheeler loan and small business funding, incentives for women’s cooperatives, and special focus on drought-prone areas.
2. 2 Basic services: At least 5,500 villages were slotted to receive power by May 2016, Rs 19,000 crore to build roads in villages, cooking gas for BPL families, and Rs 9,000 crore for Swachh Bharat Abhiyan with special emphasis on clean villages and toilets for every home.
3. 3 Modernisation: 3,000 medical stores to be started under Jan Aushadhi Scheme till 2017, launch of agricultural e-market portal, digital literacy mission programmes, and new reforms in banking, insurance and infrastructure.
4. 4 Agriculture: 28.5 lakh hectares to be brought under irrigation programmes of Pradhan Mantri Krishi Sichai Yojana, Rs 412 crore for organic farming initiatives (5 lakh acres area being targeted for organic farming), Rs 5,500 crore from PM Fasal Bima Yojana, Rs 5,500 crore for crop insurance, Rs 17,000 crore for irrigation, aim to double farmers’ earnings by year 2020.

These initiatives will go a long way in uplifting India’s rural regions. A lot of untapped potential exists in India’s villages, held back owing to lack of opportunity, timely finance and even awareness about several welfare schemes. Meanwhile, several financial institutions in India are doing their bit to bring about a revival in the fortunes of India’s villages. These initiatives include simple and accessible banking and insurance services for the rural areas, as also funding opportunities for families like two wheeler loans and business loans to kick-start their own venture. 

Benefits of a Home Loan

According to statistics released by the Reserve Bank of India, the housing market has been witnessing a constant rise in prices since the first quarter of the financial year 2010-2011. The Residential Property Price Index (RPPI) saw a stark increase of 61% from the first quarter of the financial year 2010-2011 to the third quarter of the financial year in 2014-2015. With 78% RPPI growth, Jaipur became the city with the highest growth rate, whereas the lowest growth rate of 40% was recorded in Chandigarh and Hyderabad during this period.

The inflation in house prices saw a slight decrease in India since the last quarter of 2014-2015.The annual house price inflation moved slightly upward in developed countries like the US and UK since the last quarter of 2013-2014, while in Asian countries like China, Indonesia and Malaysia, the inflation rates went down during the same period.

This constant rise and fall of rates in the market is making it even tougher for the common man to own his dream house. That's where banks and housing loans come into the picture to help you fulfill your dream without having to worry about the market volatility. Here’s a look at some of the benefits of taking a home loan, especially if you evaluate the amount you apply for using a home loan EMI calculator.

Advantages You Stand to Gain

1. Low Interest Rates Buying your dream home with a loan is a long-term decision, which can have a financial impact on you for over a period of at least 10 years. During this time, the interest rates are bound to go through various up and down cycles. Therefore, it can lead to situations where interest rates fall, allowing you to prepay the whole loan and own that home faster than you expected. For example, the interest rate in 1995 was 18%, as compared to 7.5% in 2015-2016. Banks often provide lower interest rates to new borrowers. So, when there is a rise in your existing home loan rates as the per interest rate cycle, pay 0.5% of the outstanding loan as processing fee and avail the rates offered to new borrowers. 
2. Tax Benefits According to Section 24(b) of the Income Tax Act of 1961, you can claim a tax deduction of up to Rs. 1.5 lakhs towards the total interest payable on a home loan. According to the newly added Section 80C, along with the 80CCE of the Income Tax Act, repayment of the principal amount up to Rs. 1 lakh on your housing loan can be given as a deduction from the gross total income under certain prescribed conditions.

So, when you decide to go ahead with a home loan, make sure to use the home loan EMI calculator to find out the amount you will have to pay every month. This will give you the freedom to plan your financial matters well in advance and avoid any rude shocks later on. 

Understanding monthly income plans and their benefits

If good returns with a supplementary source of income are what you expect from your investment, look no further than monthly income plans.

What is your expectation from the money you invest? Do you merely wish to see steady growth or do you want the investment to return as a second source of income? The very least your investment must do is multiply and provide you with regular income. But there are tonnes of investment options out there, so it can become a little daunting to choose the most suitable one.

Start yourself on the road to financial success with a highly useful investment instrument known as the ‘monthly income plan’.

What are Monthly income plans?

A Monthly Income Plan (MIP) is, as stated above, an investment product that helps one secure his finances for the future. When you buy a monthly income plan, about 80% of the corpus is paid towards investment in debt instruments, while the remaining in invested in cash or equity securities. Thus, it is a debt market oriented mutual fund with the potential to provide periodic income via dividends. The money is invested in such debt instruments as corporate bonds, Government securities and debentures. Thus, the growth of the monthly income plan is assured, though the nature of the investment is a long term one. It also needs careful study of the prevalent interest rates to monitor the fund performance better.

Choosing the best monthly income plan

When looking for the best monthly income plan, look for one that is rated highly in its category and has strong recommendations from prominent business publications in the country. Some MIPs also receive awards for the best rate of growth and overall performance. Keep a lookout for customer testimonials as well – they offer the best inputs on which plans to buy.

However, the plan you choose depends on your financial outlook and long term goals. You will be better served exploring another investment option if you seek short term gains. Monthly income plans are useful for the medium to long term. The plan must adjust itself to realign with smaller equities in markets that see a reduction in debt returns – this assures returns on the plan despite declining interest rates. It is prudent to remember that every monthly income plan carries a moderate risk.

However…

• MIPs may not declare dividends every month, and certainly not in the first month right after investment. At a later stage, dividends are not declared owing to poor market performance.
• The returns are accounted for in terms of the prevalent interest rates. The equity component of the MIP helps to offset the rise and fall in market rates.
• Monthly income plans are taxed just like other debt funds in India. 

Bad credit score? Here’s how you can improve it

We present a few tips and tricks to improve your credit score before applying for a home loan.

It is easy enough to get a loan in today’s times, both for professional and personal reasons. But it is not as easy as just applying for a loan and getting the cheque from the lending institution – there is the matter of having a good ‘credit score’ in between.

A credit score is simply a number derived from the applicant’s personal credit history, basis the past credit, new credit taken recently, loans repaid and time taken to do so. This number is often the first thing that banks and financial institutions look for when examining an application for a loan. Most applicants do not know this – they simply assume that a large income and good repayment capacity will get them the loan approval.

The credit score thus helps lenders establish the applicant’s credit worthiness, i.e. if the applicant is a safe one or a risk for the lender. Basis the lender’s interpretation and understanding of the credit score, one’s loan application may be approved or rejected outright. If a ‘risky’ candidate’s application is approved, the rate of interest levied might be a higher one.

But the credit score is studied before you apply for a loan. Fortunately, there are ways to improve your credit score before you make your loan application. The following are a few ways:

• The lender will not ask for past loan history to first time applicants, but will examine current assets that the applicant will put up as collateral. Make sure these assets are of high quality.
• If you still have an unpaid loan, try to repay it as quickly as you can, over and above the EMIs you pay per month.
• Before making your application, use a home loan EMI calculator to find out how much your monthly outgo will be. If you already have some funds in reserve, apply only for the remainder.
• Lenders also study repayment patterns on credit cards. Clean out all credit card debt first.
• Your application might be rejected if you are found to be embroiled in cases of cheating and/or forgery, or if you have ever declared bankruptcy or there have been foreclosures against your name.

5 Things to Ease into your Retirement with Improved Finances

It is never too early but it might get too late to plan for your retirement. We explain how you can ensure good cash flows in your post-working years.

The retirement years can be a time of blessed release from familial obligations, financial worries and in fact, any pressure. But this is true only for those who have sufficient financial wherewithal to tide over the expenses at the time. Have you made a financial roadmap for your retirement life? If not, consider these five steps to get started:

It is never too early but it might get too late to plan for your retirement. We explain how you can ensure good cash flows in your post-working years.

The retirement years can be a time of blessed release from familial obligations, financial worries and in fact, any pressure. But this is true only for those who have sufficient financial wherewithal to tide over the expenses at the time. Have you made a financial roadmap for your retirement life? If not, consider these five steps to get started:

1. Make a monthly expense plan. At about five years from retirement, you will have a good idea of how much money you will need in your retirement years. Your income will stop but your expenses will not – these include daily living expenses, rent/mortgage, unpaid loans, variable costs (clothes, groceries, bills), large costs (vacations, home repairs, etc.) Now factor in inflation and add it to this figure – will your pension or any other source of income pay these expenses? If not, you must consult with an advisor about generating more post-retirement income.
2. How will you be protected? Your retirement years will see you falling ill, developing age-related aches and pains, selling some assets to pay liabilities, etc. You require protection for yourself, your house, your car and other valuable assets you own. If you have not taken insurance, do so now (though the premiums might be higher at a later stage of life).
3. Take a calculated risk. Once your income stops, you might need to make a plan about how to raise finances against the assets and investments you already own. For instance, some people take a loan against mutual funds or open a bank fixed deposit to mature in time for retirement. Others sell off their current homes to buy a smaller one and live comfortably on the surplus funds. Your financial adviser can best tell you how to do this basis your finances and investment risk.
4. Count your taxation. Taxes eat away a chunk of one’s finances every year. Though you will not have a salary in your retirement years, you will still accrue income from owned properties, investments, maturity of fixed or recurring deposits, any business you own, etc. If you are a senior citizen, your income might come within the permissible tax bracket. If not, your financial adviser can show you how to reduce your taxable income.
5. Make a plan for your partner. What happens to the home and the household expenses after you are gone? Your partner might suddenly become vulnerable to financial uncertainty and might have to depend on children and close relatives for sustenance. Make a plan that takes into account your partner’s living expenses, the transfer of assets such as property and gold to your partner, making your partner a nominee for your savings account corpus, etc.

Top tips to find the right home loan

Not every home loan is created equal. Finding the one that works for you will take planning and calculation.

Owning a home is the topmost priority for most people today, especially those who live in rental accommodation in the country’s expensive cities. Every person wants a space to call his own, free from the hassle of paying monthly rent and moving homes every few years. Hence, it is preferable to buy one’s own home and live in peace and security for the rest of one’s life.

However, you will need a home loan to pay the bulk of the home’s price. This is how you select the best home loan product for you.

• Check your loan eligibility. Each lending institution starts by finding out the applicant’s loan eligibility. This is computed by examining the applicant’s source of income, whether repayment capability is bolstered by spouse applying as co-owner, credit history, existing debts, etc. If the applicant is found suitable, the lender will give the go-ahead for the application. You can find out how much loan amount you will get and your monthly outgo.
• The EMI question. The monthly EMI you will pay against your home loan repayment is an important figure. It is deducted directly from your bank account every month and you cannot ask the lender to not deduct the EMI for a month or two if your finances are tight! Hence, agree to pay an EMI which will not strain your monthly budget to impossible levels. Ask the lender for all calculations of your EMI basis the different rates of interest being offered, or readjust the tenure.
• Choose the right rate of interest. You will be offered a fixed or a floating rate of interest on your home loan amount. If you are fairly confident of repaying the loan early, choose a floating rate of interest because your repayment amount will be lower. Else, choose a fixed rate of interest. The lender must give you a choice to select between the two and switch at a later date.
• Select a shorter tenure. If you multiply the EMI to be paid with the tenure (in months) that the lender is offering you, the resulting figure should be the loan amount. If you choose a shorter tenure, your EMI amount will increase. But the loan with a shorter tenure will be cheaper for you. However, select a shorter tenure only if are sure of repaying the loan before tenure is up.
• Select the right lender. There are several home loan lenders today providing excellent loan products. Find the one that works for you the best by seeing the disbursal process, the rate of interest, the processing charges and whether any foreclosure charges are being levied. You can also try and negotiate the interest rate if you have a relationship with the lending institution.