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May 25, 2012, 11.14 AM IST | Source: Personalfn.com

5 things to do with your money

There are individuals who have huge surplus money but they really don’t know what to do with it or how to put it to better use.

There are individuals who have huge surplus money but they really don’t know what to do with it or how to put it to better use. While these individuals may attract the envy of many, we believe owning money and not knowing what to do with it can be quite an unenviable situation. On the other hand, there are some investors, who don’t have a great deal of surplus money at their disposal, yet are in complete control of their finances. These individuals seem to be in the driver’s seat as far as their finances are concerned and should in fact be envied instead.

While most of you would find it a little difficult to digest that there are investors who have the money but don’t know what to do with it, but that’s the truth. Don’t believe us, just look around and see the number of people with the latest gizmos, iphones, cars, clothes and consumer goods. What’s wrong with that? Nothing at all! It’s a free world and you can own anything and everything that your finances permit you to. Do this small test, when you see someone flashing his latest iphone or some gizmo, ask him if he has planned for his retirement, or whether he has a financial plan in place to pay for his child’s college fees 10 years down the line. Chances are that person will be more keen on discussing ‘relevant’ points like the features of his latest iphone rather than dwell on the ‘irrelevant’ issues raised by you.

To be sure, these issues (like the features of a latest iphone) are anything but irrelevant. But money has that effect on people, it makes them want to rush towards the immediate and ignore the future. So you have more iphones being bought than financial plans being prepared.

So, although it’s good to have money, it’s equally important to know what to do with it. We list 5 most critical tasks individuals must accomplish with their money.

1. Do your tax planning

If you are liable to pay tax, tie up your tax planning exercise. As a law-abiding citizen paying taxes is most important and so investing promptly in the right avenue to save tax assumes importance too. An individual can save tax upto Rs 100,000 by investing in tax-saving investment avenues. These avenues range from the traditional Public Provident Fund (PPF), National Saving Certificate (NSC) and life insurance to the more dynamic tax saving mutual funds (Equity Linked Saving Schemes - ELSS). These avenues not only help in tax planning but if selected well can also help individuals achieve their long-term financial goals.

2. Plan now for your retirement

A common regret for most of us in our twilight years (apart from not having exercised enough) is our poor savings and investment track record. Most individuals wish they had saved either better or more. Planning for retirement is one thing that individuals across age groups must take up on priority. Of course, if you start at an early stage it’s even better, but the fact is it’s never too late to set aside some money for retirement.

What makes retirement planning so important for us to list it second in our ‘to do’ list? The answer to that question is the inflation. Inflation is what usually leads to a rise in prices of goods and services. If you are wondering why oil, the gas cylinder, toothpaste, eggs and even ‘idli sambhaar’ costs a lot more than what it used to even 5 years ago, blame it on inflation. So planning earlier on in your life is a solution. Calculations show that even a 5-year delay in investing (Rs 10,000 annually at 10%) can make a substantial difference (as high as 40%) to your retirement corpus.

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READ MORE ON  tax planning, personalfn.com

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