Savings, You (can’t) WON’T Do It!

Let us tell you something. It is not just the money that you invest helps you build the wealth nor the returns. It is the habit of savings that you make. Wealth created over the years can be destroyed faster than it is earned. What makes you wealthier & stay wealthy is; the rate of savings and the spending that you make. It may look hard-hitting but that’s the truth.

One does not really need to have a sky scorching income to become wealthy, but should have the habit of higher savings and investing the same in appropriate asset classes that give better returns.

Think before you spend 

More savings meaning lower spending. By slowing down your expenses your bank balance balloons up. Moreover, the savings varies between people, for someone a rupee of 1,000 saved will differ from another. Stick to your basics of spending.

Rise in income leads to rise in expense 

Almost for everyone, including us. The expenditure goes up the way the income goes up. Sometimes the expenses goes up faster than the income. If we break down the expenses, we end up with three layers – essentials, Comfortable essentials and Un-necessary show off.

Everyone in this world should and will spend on the essentials such as food, shelter and so on. Comfortable essentials are the expenses that you make towards your comforts, entertainment & so on. Un-necessary show off is just the reflection of your ego towards the society. You start spending on things that you really do not need, just to appease people around you and you keep on spending more & more to appease them every other time. You really do not have to appease someone. Be simple and save more.

You have control over your savings 

If you think savings needs hefty paychecks, then you can never become wealthy. I’m telling you right away. Savings should urge as a habit. One should change his perspective towards spending. If spending dents your savings, then you should be meaningful in your spending. You are throttling your vehicle and you should know the limits to juice out the excess mileage.

No reason at all 

One should never have a reason to save. If you say, I am saving for a house, to buy a car or a gadget, then I would say that really is not saving; it is just spending postponed for a later date. To me savings should never depend on a goal. Saving is hedging. No friend/family/alien will help you during the worst moment of your life, but your hard savings does.

The time is yours 

You can buy anything with the money you earn but not time. Time is the intangible thing we let out to someone for the money we are being paid. On an average an individual is tied 10 to 11 hours a day for the paycheck he receives a month. Savings gives you time to think, look out for opportunities, and options to choose.

The unprecedented wealth 

Having control over time and being flexible are the treasure for your life. By being flexible, you can wait and take on the opportunities that you love to do the most.  It really does not matter to you if you get a lower salary job but with a meaningful purpose to life. The treasure is achieved by saving more.

If you believe, you are so intelligent and you are irreplaceable. Then you are wrong. Intelligence isn’t going to be an sustainable advantage in the near future with the presence of AI’s. But flexibility is and will always be. AI’s can do better job than the smartest people on earth. So, it really doesn’t matter how smart and intelligent you are. What matters the most is, the control over your time and options to choose. Having said that, I repeat, “SAVE MORE”.

If you still argue about life’s uncertainty to save for future but go buy a fancy gadget (aka Mobiles, High end Watches, bla bla what not! ) worth 30,000 bucks earning monthly income of 40,000 bucks to appease people around you then 

1.You can never become wealthy nor have your time.

2.You have seriously wasted 10 mins of your time reading a masterpiece

Initially we thought of coming up with a write-up which is close to our heart anytime. But fortunately we did learn a lot and got to know a few interesting things about Provident Funds (popularly known as PFs) So we decided to postpone the actual blog and wrote this one, as this will help readers to correlate with the next one! So, this week let us look at what Provident Funds are all about!

Provident Funds are two types Employee Provident Fund (EPF) & Public Provident Fund (PPF). Both Employee Provident Fund and Public Provident Fund are long term investment tools which helps you secure your retirement days. Before you invest in either EPF or PPF, it is important you know about these plans.

 

EPF Vs PPF:

EPF alias Employee Provident Fund is automatic savings option for Salaried employees where the employee and employer both contribute 12% each of the employee’s basic salary (Employers contribution of 12% is further broken – 8.33% goes to pension and 3.67% to EPF). EPF is part of your employment.

Public Provident Fund alias PPF is an investment scheme by the central government, started with the objective of providing old age income security to self-employed individuals and workers from unorganized sectors. It is voluntary and any resident Indian can opt for it. Minimum investment of Rs. 500 and Maximum of 1.5 lakhs a year.

Returns:

  • PPF – Rate of return is 7.8% (rate effective since July 2017)
  • EPF – Rate of return is 8.65% (better than PPF)

The above rates are for the year 2017. Though you get fixed rate of return and your returns are guaranteed, the rate is not guaranteed since Govt of India changes it every year. For instance, during the last revision, EPF return is reduced from 8.8 to 8.65%.

Lock-In period:

  • EPF – The amount accumulated is paid at the time of retirement or resignation. Also one can transfer from one to another company, in case of job changes.
  • PPF – Your hard-earned money is voluntarily locked in for 15 years. You can withdraw 100% from 16th Year onwards…

Tax Exemption:

  • EPF – Eligible for deduction under section 80C. Only criteria to be eligible for is, one should have been under employment for a period of 5 years.
  • PPF – Eligible for deduction under section 80C. In addition, the maturity proceeds are tax-free.

 

Withdrawal:

  • EPF – One can withdraw money for personal needs by disclosing appropriate documents or can avail loan on the PF.
  • PPF – Partial withdrawals are allowed from 7th year on wards. Loan can be availed between 3rd and 6th financial year (upto 25% of one’s account balance)

Best out of the two:

From the above it is evident that EPF is comparatively better than a PPF.

  • Your employer contributes along with you.
  • One can withdraw from EPF (making it a better liquid instrument) based on the personal needs subject to the PF withdrawal norms. Withdrawal on PPF is only after maturity (partial after 7 years).
  • Interest rate on EPF is marginally higher than PPF

Being wise and prudent is at most important for wealth Creation. Since your EPF is already a part of your 80C, one should avoid investing in a similar Product (That PPF is.). Like you love having varieties in your plate of food, You should also add variety to your investment plate. Hence, it is appreciated that we look for better alternatives to save taxes.