It's about to start a new Financial year and we usually start the new year with new goals and resolutions, then why not to plan for TAX saving. Although, tax planning should ideally be done at the beginning of the financial year, in the month of April, you have one more month in hand to plan and break your investments over the year, yet many of us have still not kicked off the tax planning process. So, without wasting any more time, you must immediately get on to your Taxes.

Calculate your Tax Liability: Since there is already a time crunch, the plan must be a sure-fire to avoid making mistakes later. Hence, begin with estimating your annual income, you already have nine months' numbers with you, so you are left with just three months' to judge. Remember to include:

• Any Annual Bonus that you are expecting,

• Any Capital Gains or Losses through redemption of earlier investments or any imminent sale of assets

• Interest incomes from fixed deposits or for that matter, from saving accounts also

• Dividend Incomes, etc.

Expenses: Once you are through with the Income, try to cut it down by deducting the expenses eligible for deduction. Most people start investing in PPF's and NSC's randomly on the basis of their annual income. But you don't need to always invest to save taxes. There are certain expenses which you have already paid for, and which can help you bring down your tax liability. The money you save by not investing can be directed to products which are more suitable for you, since then you won't be limited by Section 80C. So, if you have spent on or are about to spend on any of the following from April 2020 until March 2021, then they should be deducted from your gross taxable income:

• Tuition Fee of your Children : The tuition fee paid by you for your children to any registered school, college, university or any other educational institution based in India, for full time studies, is eligible for deduction under Section 80C of the IT Act. Remember, this deduction is eligible for fee paid for upto 2 children.

• Rent Paid : If you are living in a rented accommodation, the rent paid by you to the landlord, is eligible for deduction. Salaried individuals can claim HRA exemption provided by their employers, while business owners or salaried people who do not get HRA exemption, shall claim the rent paid under Section 80GG of the Income Tax Act.

• Medical Insurance : Your health insurance premiums can also be claimed as a deduction u/s 80D of the Income Tax Act.

• Home Loan Principal and Interest : If you are paying your Home Loan EMI's, then both the principal repayment as well as the interest paid, are separately eligible for deduction. The principal repayment can be claimed under Section 80C for upto Rs 150,000 and the interest component can be claimed under Section 24, for upto Rs 2 Lakhs.

• Payments made for purchase of a Residential property : In addition to Home Loan installments, if you have acquired a house or a land in FY 2020-21, then the payments made at the time of acquisition like the stamp duty, registration fee, etc., are also eligible for deduction.

Apart from these, there are a number of expenses that you can claim as a deduction from your income, like Interest paid on education loans, donations paid, deductions available to disabled people, etc.

Assess the investment amount : Once you are through with the expenses part, and are at the income post deductions, the next step is to assess the amount you need to invest. If your Sec 80C limit isn't yet exhausted after providing for the tuition fee or home loan principal, Life insurance policy premiums, etc., if any, now you need to fill in the gap with investments.

Asset Allocation : Your tax investments are not just a tool to save tax. They are a part of your overall financial plan of achieving long term goals. Therefore, these investments must follow your ideal asset allocation, they must be linked to a goal, and shouldn't be treated as a random mandatory investment created just to save tax.

ELSS Schemes for Saving Taxes and Wealth Creation : While most of us have been investing in PPF's, Tax Saver FD's, Traditional life insurance policies, etc., since ages. But these products have a number of shortcomings, like the interest rates are gradually becoming exceptionally low, there are high lock in periods and the returns are taxable, except in PPF. So in this scenario, investors must consider ELSS schemes of Mutual Funds, these are eligible for deduction under section 80C, with the minimum lock in of 3 years, the returns generated are way higher than all other conventional products, and that too tax free.

You must at once, sit with your advisor, who can guide you with the various investment options and the ones which are most suitable for you. So, once you are through with the plan, it's time for action. Start investing and also accumulating the receipts for all of the above expenses paid and the investments that you are going to do to avoid the last minute hassles.

Albert Einstein had once called power of compounding as the eighth wonder of the world.This is one investment principle which makes money making simple. There are two facets of power of compounding which if you follow as an investor, creating wealth becomes easy. First is to start investing early and giving time to your investment and second stay invested, do not withdraw money in between and let it grow.

In simple terms compounding is nothing but reinvestment of interest/income earned at the same rate so that interest/income earned also generates additional return at the same rate in future. Let me explain this with simple example :
If you invested Rs. 1,000/- in an instrument giving 10% return in a year. At the end of year 1, value will go to Rs. 1,100 and in year 2 you will earn return on Rs. 1,100 and not on original investment of Rs. 1,000/-.

But why is it so important in world of investment and how can it create wealth for investors ?
Let’s try to understand this with simple story of chess & grain. Chess was invented by Grand Vizier Sissa and then he gave it to a king in India. The king offered anything in return; Vizier said that he would be happy merely to have some wheat: one grain for the first square of the chessboard, two grains for the second square, four for the third, eight for fourth and so on. The king was amused by the ‘small thinking’ of Vizier but the king could not fulfill the desire of the inventor of chess. Why? The number of grains for the whole board = 18,446,744,073,709,551,615. This is more wheat than in the entire world; in fact, it would fill a building 40 km long, 40 km wide, and 300 meters tall. So, the moral is if one uses the ‘Power of compounding’ smartly, then becoming rich is not a dream.

Let me explain the same concept in investment parlance. Let us understand a story of a tortoise and hare. The hare saves Rs. 10,000 every year for the first 10 years. After that he saves nothing. However, he compounds his money at the rate of 15% for 30 years. The tortoise starts at the year 11 and keeps saving Rs. 20,000 every year (double of what hare saved) for the next 20 years. Like the hare, he too compounds his savings at 15% every year. So hare invests only Rs. 1 lakh and tortoise invests Rs. 4 lakhs. Let's tally the score at the end of 30 years. Tortoise makes a respectable Rs. 23,56,202 whereas the hare makes Rs. 38,21,468! This is nothing but power of compounding for hare and cost of s15.5 lakh for starting late for tortoise.

So there are two simple logic of generating compounding impact on your portfolio:

1. Start investing early in life. No matter how small that investment is but start investing whatever small amount you can save. Ideally starting point should be 1st month of pay cheque of your life. So as soon as one starts earning, he/she should start investing.

2. Let your investment grow consistently without doing unnecessary withdrawals in between.

The same logic of compounding applies to retail investors approach. No matter how small you start with, important is to start investing early so that your money gets time to compound over a period of time. As investor starts early and has time on his side, he can look at higher return potential asset class like equity to generate positive real return and create wealth over a period of time. Important is not how much you invest, more important is for how long you stay invested.

Rule of 72 might help you in understanding this concept. Rule of 72 gives you doubling period. In short it explains how long your investment will take to double. This rule says that to know doubling period you divide compound rate of return into 72 and you get doubling period in number of years. e.g. if your investment generates 12% return then 72/12 = 6 is the number of years require to double your money.

So if you park your money in fixed deposit giving 9% return you will require 72/9 = 8 years to double your money whereas if you park your money in mutual funds generating 15% return you can double your money in 4.8 years.

(Initial investment of Rs. 1 lakh)

Year End Value @ 9% Value @ 15% 1 Rs. 109,000 Rs. 115,000 2 Rs. 118,810 Rs. 132,250 3 Rs. 129,205 Rs. 152,088 4 Rs. 141,158 Rs. 174,901 5 Rs. 153,862 Rs. 201,136 6 Rs. 167,710 Rs. 231,306 7 Rs. 182,804 Rs. 266,002 8 Rs. 199,256 Rs. 305902 9 Rs. 217,189 Rs. 351,788 10 Rs. 236,736 Rs. 404,556

As you can see from the above graph, investment of Rs. 1 lakh will grow above Rs. 2 lakh by 5th year at 15% compounding while it takes 8 years in compounding at 9%.

As Albert Einstein said, 'compounding is something one who understands earns it and one who doesn't understand pays it'. Remember compounding works best with equity asset. That may be the reason why world's richest men list include people who have created wealth by taking advantage of compounding with their equity investment.

"Do you think there are any specific habits that make some people more successful with money than others?" This is a question that a lot of clients ask us.Initially, we avoided saying much as we did not want to make any general statements. As we moved around the country and met a lot of successful clients, we realized that there are certainly some differences in how financially successful people manage money vis-a-vis the not so successful. We came across a lot of people earning high salaries but who were always short of money as well as people with average salaries but always had money on hand. We were able to discern certain patterns which we would like to share with you:

1. Surround themselves with positive people. They tend to stay away from negative people and negative thoughts and do not listen to reasons why something cannot be done. They spend most of their time with people with a can-do attitude who find ways to make things happen.

2. Are not held back by failures. They use their mistakes and failures as stepping stones to success rather than obstacles or reasons to stop trying. Rather than running behind achievement, they spend a lot of time putting in the necessary efforts towards achieving their goals. Too much achievement can result in fear of failure.

3. Manage their time effectively. Hours, minutes and seconds are non-renewable and precious resources. They set their priorities and passionately focus on them. Successful people tend to limit their screen time (TV, video games) compared to unsuccessful people. There is nothing inherently wrong with watching TV but it tends to take up a time which can be better spent exercising, reading or learning something new.

4. Ignore the opinions of others. There is no compulsion to keep up with the neighbors. Limited exposure to mass media and advertising allows them to be more productive and not get influenced by cultural norms. They do not follow the herd while taking investment decisions. Warren Buffett, one of the richest people in the world, stays in a 5 BHK house bought in 1958 for $31,500 and currently valued at $700,000. People with trendy lifestyles and the latest fashions tend to be usually short of money.

5. Have a sense of direction. There is purpose to their actions. There is a reason why they work hard, save money and invest wisely. Their daily actions are aligned with their long term dreams and goals. People who are always struggling with money have no direction and idea of what they want from life.

6. Focus on the big wins. They pay attention to the details and develop smart saving habits, but are not paisa wise and rupee foolish. While they may save money on the small things, they do not sacrifice on critical wants like housing, food and income. While the not-so-successful people end up wasting away their paisa and rupees.

7. Do difficult things. They work harder, longer and smarter than other not so successful people. They are willing to sacrifice today’s small comforts for tomorrow’s gratification and big rewards

8. Make their own luck. They keep their eyes and ears open and are constantly aware of what's happening around them. They recognize opportunities as and when they come and boldly seize and act on them before the others do.

9. Believe they are responsible for their own future. Any given situation, whether difficult or easy, is nobody’s fault and may be beyond one’s control. What is controllable though is how you respond to it. Successful people do not react to any given situation but respond pro actively and productively.

10. Grow and change over time. They are willing to adapt, evolve and appreciate different points of view. They are constantly acquiring knowledge and learning from their experiences with a view to change and mold their minds in the right direction.

Most people (including most of us) practice only a few of the above mentioned habits but not all. The most successful people we have meet practice all of them and the not-so-successful people do none.

To conclude, people who are successful with money and life take what they do very seriously. They treat their life as a business and behave as the CEO and CFO with the goal of “growing their business” over time. Your personal wealth is your real business, everything else is supplementary and supportive. Please nurture your business very carefully.

We all want to give the best to our children. We feel that our children do not need to go through the same experiences, difficulties and compromises we had when we were children. And true to our wishes, our children have experienced a very comfortable life where things have been very easy for them. They have been exposed to social media and television at a very early age and have huge aspirations and dreams.

Perhaps one concern we all have is that real life is tough and our children need to realise that. They need to realise the amount of hard work and effort that goes into earning money. As parents, we all wish that our children are much more sensible and careful when it comes to dealing with money. However, this is not something that will be easy for you. Inculcating the right understanding, respect and value for money and developing the right habits from an early age will take time and patience on your part, perhaps many months and even years. In this article, we will explore a few of the ways we can let our child on the path to financial literacy and right habits.

Things to do ...

1. Recording: The first step which everyone should do is to ask and teach the child to record all his/her spendings. Please do not comment or make any negative observations here as the child may stop recording those things or hide them from you. Let them record everything without fear. There are many mobile apps which help record expenses or instead this can be done the old way – pen & paper or diary.

   Motivate them to keep track of their spendings and give them pocket money with the small condition of maintaining the records and sharing it with you for next pocket money. Once there is a track of spendings over a few weeks /months, ask them to make observations. Take a back seat and let them self learn.

2. Budgeting: Once the children are habituated to keeping records, budgeting should come naturally. Follow a fix periodical pocket money /budget for them. To begin with, this can be for say a few days for small kids, then for every week and slowly progressing to å monthly allowance for more mature children. Once the children are habituated to keeping records, budgeting will be very easy as they know they have to live within that budget for the rest of the period. Just ask them their daily balance without making any judgements or comments. Your role should only be to be strict while giving your pocket money. Ask your children for any major events in advance and adjust your pocket money in advance but not post the event.

3. Patience: An essential element of learning is patience and this has to be inculcated slowly. There can be many ways of teaching this. For example, if your child has asked for any particular toy or gift, let them wait for it. You may either give an appropriate future date for the same. Alternatively, you may divide the money and pay them equally over many days while asking them to save the same. Eg. If a toy costs say Rs.2,000, pay them Rs.100 daily for 20 days and make them wait slowly till the full amount is accumulated.

4. Saving: Savings is the most important habit one should focus on developing. With basic habits of recording and budgeting, savings should come easy with patience. Show them how they can cut few corners /spendings and save more. Motivate them for saving with some extra rewards from your end once their savings targets are achieved. For eg., if they manage to save 20% of their pocket money, reward them with say extra 20%. Motivate your children to save larger amounts for bigger and bigger gifts/events. For eg., if they have managed to save say Rs.3,000 for one item/gift, instead of going out and spending, show them better options of say Rs.5,000 and ask them if they would like to have that. Put in your rewards as well. Let them take pride in saving big and then spending. From toys to cycles to electronics to even bikes, this habit can be great learning for your child.

5. Responsibility: Letting children learn with some real responsibility is a good way to teach them great values. One can begin with small responsibilities like caring for toys, asking one to get repairs for broken toys, caring for small pets like fishes in your aquarium or birds or other big pets like dogs for teenagers. Pets can be a very good way to develop empathy as well. Put as much responsibility on them as you can. Try not to interfere even if things may start looking bad, let your children take responsibilities and learn the consequences of not doing what is needed. Of course, you can lend a helping hand when the child is doing something. You may even give the responsibility to say buying food and other things for your pets to the children and allocate a budget for the same.

6. Participating: As your child grows and learns, start involving them in planning your household expenses. Let them also have their own share of inputs on things like outings, entertainment, purchase of electronics, holidays, etc. Value their inputs and discuss options. For eg., if they want holidays at some premium location, ask them if they are ready to forego /cut some spendings and wait longer? Also start to involve them in sharing and monitoring things like investments and insurance. Teach them as and when you start sharing. Slowly ask them to maintain all your financial records and documentation. Also let them participate in your meetings with your financial advisors /insurance advisors /tax consultants, etc.

Lessons and habits learnt at an early age stay for a long time in our lives. For our children who are exposed to a virtual world almost all the time, the realities of life need to be taught within our comforts as parents. Early lessons in money management and instilling the values of understanding of the importance of money, money's real value, patience, delayed gratification, etc will lay a strong foundation for financial well-being in life. This is of utmost importance for your child, even more than any educational course he/she may wish to pursue.