The school does not introduce you to money. Adding to that if you chose to do engineering. The engineering curriculum gives you no exposure to money. Not every home openly discusses money.
And, just like that, you make it to your first job. Earn the first paycheck and the money journey starts. When the in-hand salary comes less than CTC. You too must have felt. But.. no one told me that so many deductions are bound to happen?
With this book, Monika Halan explains personal finance from an absolute beginner level. No jargons. Throughout the book, she shares actionable insights from the Indian context. How you can make money work for you?
Have 3 accounts. Income account, spend-it account, and Invest-it account. As soon as the income comes. Do budgeting. Some percentage of income should be transferred to the spend-it and invest-it accounts. Never transfer money from your invest-it account to your spend-it account.
Before you start investing. Start building an emergency fund. An emergency fund should be 6-12 months of your expenses. It also answers where to keep your emergency fund?
Life is uncertain. Buy insurance. Insurance products are not investment products. Don't consider insurance as an expense. It is for your protection. While a lot of mis-selling happens in the insurance market. It can be overwhelming to navigate alone and select the right product. On every sale, insurance agents earn incentives and commission. This is one of the reasons for mis-selling of insurance products. What they are recommending to you might not be what you need. Health Insurance and simple plain term insurance covers are must-haves without any fail.
When buying term insurance. Check if the policy is not any money back, endowment, or ULIP policies. All these have higher premiums. Buy simple term insurance. The book also answers regarding, how to figure out how much cover you would need for your family? What is the claim settlement ratio of the insurance provider?
When buying health insurance lookout for what is covered? What is not covered? Is your insurance co-pay? Is it cashless? Which hospitals are listed under the policy? What happens when the insurance holder is admitted to a hospital that is not present in the policy hospital list? Does the insurance also cover the daily medicine expense of the patient? Is the room rent included in the cover from day 1? What happens if the insured person has any pre-existing illness? From when can you raise a claim for pre-existing illness?
Book then explains how to calculate your net taxable income? What are the available deductions? Which instruments can you invest in for tax-saving purposes?
Standard deduction of 50,000 is available. You can claim Rs 1.5 lac deduction under section 80C.Following instruments come under 80C:
- PF deduction
- PPF investment
- VPF
- ELSS
- 5-year tax saving FD
- Term insurance premium
The health insurance premium paid. Regular health checkup expenses upto Rs 5000 can be claimed under section 80D. Section 80D is further divided into different brackets based on age. Under this, you can claim for your spouse, children, and parents. The maximum deduction limit is decided based on your age and your parent's age.
- If individual and parents both are below 60 years. The total deduction that can be claimed under section 80D is Rs 50,000.
- If individual and family below 60 years and parents are above 60 years. The total deduction that can be claimed under section 80D is Rs 75,000.
- If individual and family and parents all are above 60 years of age. The total deduction that can be claimed under section 80D is Rs 1,00,000.
If you are not claiming HRA deduction. You can claim house rent deduction under section 80GG.
Interest generated on a savings bank account is tax-free up to Rs 10,000 under section 80TTA.
She says if you are aware of only basic instruments like a savings account, bank FDs. Keep your money there. Invest in mutual funds if you understand mutual funds. Mutual funds are subject to market risk.
Book explains mutual funds. How do mutual funds work? What is the expense ratio? What is NAV? How is NAV determined? In which sector and industry does the mutual fund further invest? Is your portfolio diversified? Based on what factors you should select a mutual fund? What are the types of mutual funds? Should the investments be SIP or lump-sum? What is SIP?
What is equity? Why equity exposure to your money is important? Do the returns you get on your investment beat the inflation value?
Life is uncertain. Write Will. You want your money to work not only for you. But, for your family too.
Retirement.
I was interested in DIY personal finance. This is by far the best recommendation I ever received on personal finance. Also, a heartfelt thanks to Monika Halan for writing the book in a manner that anyone can understand. Whatever, I have picked up in personal finance. It is because of her book.
What have your go-to resources been for learning personal finance?
References:
If you are interested in learning about personal finance. Below mentioned are some more books on similar lines. These introduce you to finance. But, lacks Indian context.
I'll teach you how to be rich by Ramit Sethi
Rich dad, poor dad by Robert T Kiyosaki
The Psychology of Money by Morgan Housel
If you are interested in buying Monika Halan's Book. Bonus - This book has a new and updated edition based on covid-19. Here you go.
Let's Talk Money by Monika Halan
Zerodha varsity has a module on personal finance.