The Indian education system teaches us a lot of things, algebra, excerpts of literature, “mitochondria is the powerhouse of a cell”, bunking classes 101, etc, to name a few. What it fails to teach us, are skills and training we would actually use in day to day real life. Like how to be a good person, and how to pay taxes. We’ll circle back to the former later, as for the latter, it’s essential we figure it out ASAP.
It being the 29th of July today, tomorrow marks the end of the finacial year 2016-2017. Which means today is the last day you would have to file your tax returns. Now most of us, hailing from non-finance educational fields have no practical ideas of these meagre necessities. Stepping into “real life”, I was convinced I’d eventually commit some sort of tax fraud, thanks to my blissful ignorance of basic financial matters.
As I started to grow into this world, and this role, the ever confusing parade of numbers and percentages of annual incomes, deposits, equities, bonds and taxes started to un-blur. So if you’re like the me I was, up until a while back, starting the first “job”, struggling to manage your finances, here are some basic terms to get right into:
- Income : Your income is the total sum of money that you earn in a year, from the basic salary from your main gig, your side hustles, and your investment returns included. Which means, if you have Fixed deposits and mutual funds, and bonds and shares, all of the returns you make are counted as a part of your annual income.
- Taxes : You are taxed on your total annual income. That said there are certain investments you can make, that give you returns that are non-taxable.
- Tax filing : Every year you need to file your taxes at before the 30th of July, based on the tax bracket your income falls under. Now if you fall under the 0 tax bracket, ie, your income is below taxable, you STILL need to file said returns. Not filing your taxes is a federal offence, and can be fined for.
- Investments : When your income is taxable, one of the most important ways to save on taxes, is to start investments under the categories of 80C, 80D, 80E, 80G which are exempted from being taxable. These investments can reduce upto 150000INR from your otherwise taxable annual income.
If you graduated college with the utmost blindness to finances and thus have little to no savings or investments, heres a list of the first few things to take are of before moving ahead:
1. Establish an emergency fund: I cannot begin to stress how important it is to have if you plan on being financially independent. The idea is to have 3-6 months of living expenses (rent, food expenditure, bills, recreational funds) saved up in case of an emergency.
2. Get yourself a medical insurance, and a life insurance : These two, are the very first investments one must have, before investing into anything else on the market. The average plans are pretty low on the input and have great outcomes. Make sure you get an insurance plan that caters specifically to your needs, for example someone who likes to hit the gym would like a Mediclaim that covers yearly gym memberships, or someone with a family history of heart disease, opts for a higher output plan, and so on.
3. Acquire a credit card : Despite common presumptions, a credit card can be a bigger boon than a bane, obviously depending on how you use it. The point is to keep a certain budget and never go off it, remember to never charge anything to your card that you cannot pay off in a month. Having a good credit score can earn you plenty of bonuses. The simplest trick is to charge all your bill payments via your credit card, (1) they are (usually) very payable sums, (2) they happen every month, thus adding to your credit score.
4. The 50-30-20 rule : This obviously varies from person to person, but as a thumb rule, the 50-30-20 works as a basic standard. The intention is to dedicate 50% of your monthly income to fixed expenditures, such as rent, groceries, bills, 30% to your investments, short term and long term, and 20% to your flexible expenditure, that is travel, going out, shopping and so on.
5. Appoint a finance buddy : It sounds dumb, but it makes a lot of sense once you start to practise it. In the humdrum of our lives we forget our motivations and goals; having someone to bounce ideas off of, and someone who’d help you commit and stick to your finance goals always helps. Also, you educate each other about new and upcoming investments to make, side hustles to do, tips to save money. Of course you can also hire a financial advisor, but go small scale if you can.
6. The side income : Although having a full time job and career is great, the income you get might not always be sufficient.
If you feel like you’re worth more, you’re definitely worth more
This is when you get yourself a side hustle. Side hustles, however small, add to your income, your skill set, your life experience and it’s a great way to spend your idle time. So dogsit, or manage social media for local business, or manage webpages, or get a typing job, the possibilities are endless.
Or if you really don’t have the time to get a side hustle, invest. Get the money, that’s just lying around, getting bored in your bank, to grow itself, without you have to lift a finger, well, ok you’ll have to lift a finger to press the right buttons, but that’s about it. Investment options, like side hustle options, are endless (More on that eventually).
7. Quit impulse buying : Make a well curated list of the things you need, ones the lack of which puts your life on hold. And stick to the list.
When buying something you hadn’t previously planned for, dont. Set it down, walk away. Give yourself a week to think about it. A week later if you still crave the glory of your object of desire, (and your purse can handle it), buy it!
And lastly, money isn’t the root of all evil, it is what is going to give you the medium to live out your dreams. It’s time we quit associating so much negativity and discomfort with money, and talks thereof.
So save save save, and then live live live your dreams 🌸
There. I hope this helped, keep coming back for more.
(Picture courtsey : Pinterest 😋, my favourite source of inspiration)