A plan of action for 2009
* Create an emergency fund.
* Get health insurance or renew your insurance on time.Make sure there are no gaps in renewal.
* Reduce the use of credit card debt. Remember you are charged any where from 30% per annum.
* Brush up on basic financial planning issues including your net worth, when your debts need to be paid off, your retirement goals.
* Pay your bills on time to avoid unnecessary late fees.
The premium for your car insurance is determined by a number of factors. Keep the following in mind if you are shopping for a policy next year.
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* Most companies calculate a portion of their premium rate based on your driving record. So if you have a poor driving record, the rate goes up accordingly. Similarly, no insurance claims over a period of time bring the premiums down.
* Even the vehicle you drive is a factor. The logic: an expensive car is usually expensive to repair. It’s the same for sports cars and exotic vehicles: They are more prone to accidents and thus high repair costs.
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* Gender too could be a factor. Female drivers are generally presumed to be safer than male drivers.
* Colour may not be a factor in the near future, but some colours (such as red) reflect the aggressive attitude of the driver. Some colours that are less visible during dusk or poor visibility situations too could be factors.
* Where you live makes a difference. People living in areas with little or no traffic are likely to spend less on insurance than those living in congested cities or suburbs. Some neighbourhoods have a higher rate of vehicle thefts, which can result in a higher premium.
—Ajay Bimbhet, Royal Sundaram
Alliance Insurance Co. Ltd
In a world reeling under crashing markets, it is imperative that you avoid the following mistakes.
* No asset allocation: The right asset allocation is crucial. The closer your goal, the more you should focus on preserving your capital (Fixed return). A long-term goal must include exposure to stocks/equity mutual funds.
* Procrastinating with your savings: Start early and stay the course.
* Not being regular with your savings: Investing regularly is efficient and light on the wallet. Try a systematic investment plan with a mutual fund or a recurring deposit.
* Cluttering the portfolio: Pick a few good funds that complement each other. Owning five large-cap oriented funds will not diversify your portfolio the same way owning two large-cap, one mid-cap and one thematic/sector fund would.
* Not rebalancing your portfolio: A sudden change in circumstances demands that you take a fresh look at your goals, expenses, liabilities and assets. Else,an annual rebalancing act is fine.
* Giving tax planning a back seat: It must be considered in conjunctionwith the overall asset allocation. After all, the tax planning avenues will either be equity or fixed return investments.
* Combining investments with insurance: Do not combine the two since each serves a di_erent purpose. If you have dependents, opt for a term insurance policy. With your balance savings, you can invest, depending on your asset allocation.
* Not clearing debt: The debt that you should clear yourself of is the one that does not give you any tax break and where the rate of interest is much higher (personal loans, credit card debt). But a home loan can actually be bene_cial since it is funding an asset and provides a tax break.
- Dhirendra Kumar, Value Research
Eyeing the next plum job? You can structure your salary to minimize tax liability.
* Keep your basic pay between 25% and 35% of your CTC. Anything more will increase your PF contribution.
* Your house rent allowance should be 50% of your basic salary. In case it’s more than 50%, you get the tax benefit only on the 50%.
* The leave travel allowance should equal at least of one month’s basic pay.
* The cap for medical reimbursements is Rs15,000 per year.
* For certain grades, a part of the salary can be reimbursed under a head called “flexi bucket”. The reimbursements could be under fuel, car maintenance, insurance, phone and soft furnishings upon submission of bills, though this will attract fringe benefit tax for the employer.
* Child (Children) education allowance of upto Rs1 Lakh per year could also be a part of your package. This is completely tax-free. Also, conveyance allowance up to Rs800 per month is tax-free.
* Satyendra K. Mallik, vice president (HR & planning), Infinity Advertising Services Pvt. Ltd, says companies should explore the option of giving out grocery coupons and meal vouchers which can be redeemed at various shopping malls and restaurants.
- Lipi Mohapatra
If you are planning to take a home loan next year, watch out for the force majeure clause. In most commercial agreements, this clause indemnifies one of the parties in case it is not able to fulfil its obligations due to certain events outside its control.
Typically, such events include earthquakes, floods and other natural disasters. It is invoked only if the said party has failed to perform despite its best efforts, because the above events became an obstruction. Some home loan providers have made provisions to ensure that the fixed rate does not remain “fixed” in such eventualities.
If the force majeure contains standard exclusions, go for the loan.
- Namit Gupta