It is unfortunate that personal finance is not a required subject in high school or college. Not surprisingly, most young adults are fairly clueless about how to manage their money when they step into the real world for the first time after landing their first job. Finance professionals never cease to stress that laying the right foundation at the beginning of your career is the key to future financial success. All it takes to get started on the right path is the readiness to do a little reading — you don't even need to be particularly good at mathematics.

Here are some steps to take now to put your financial future on track and live a comfortable and prosperous life.

Practice self-control

Self-control is the stepping stone in managing finances better.

You need to learn the art of delaying self-gratification. In other words, do not purchase any item without measuring its consequences on your finances. If buying that item will not put stress on your finances, go ahead with the purchase. If you have the habit of using your credit card for shopping, use it wisely. And do not carry too many credit cards that you cannot keep track of. Credit cards should be used only for the convenience of making purchase without the burden of carrying cash. Never use credit cards for consumption using the credit facility offered by this instrument.

Set goals

It is important to have goals to motivate you and save your money.

Goals can be of different time horizon — short-term, medium-term or long-term. Short-term goals include saving a few hundred rupees every month. Medium or long-term goals include being able to repay a home or car loan. Ensure the goal motivates you enough to help stay on track within your budget. By being clear about what you want to save for, you can become a more successful saver.

Follow the money

Once you’ve set your financial goals, make a budget. Once you see how your morning java adds up over the course of a month, you'll realise that making small, manageable changes in your everyday expenses can have just as big of an impact on your financial situation as getting a raise. It helps you plan how much money you’ll spend and how much you will save. It also gives you a clear representation of your financial affairs and helps you live within your means by evading unnecessary expenses or borrowings. A well-planned budget emphasises the areas of concern and facilitates elimination of wasteful expenses.

Segregate your money into different savings categories: regular saving for daily expenses, short-term saving for emergencies, long-term saving for college fee/higher education of your children and even longer-term saving for retirement. It is important to prioritise your expenses. For example, payment of utility bills, children’s school fee, grocery shopping are some expenses that must be necessarily provided for. The balance money must be used to provide for other miscellaneous and entertainment activities and also should be saved.

Plan for emergencies

Gone are the days when job security was almost guaranteed. Besides, it is very common for young people to change jobs or decide for higher studies. Having money in savings to use for emergencies can really keep you out of trouble financially and help you sleep better at night.

Treat the regular monthly amount that you put into the fund as a non-negotiable monthly expense. Having a healthy emergency fund will provide you the much needed comfort.

Plan for retirement

Just as you headed off to kindergarten with your parents' hope to prepare you for success in a world that seemed eons away, you need to prepare for your retirement well in advance because the sooner you start saving for retirement, the lesser principal amount you need to invest to build up the desired retirement corpus. Inflation erodes wealth so it is essential to route your savings to vehicles that can offer you the returns that beat inflation and build the required corpus. Employer-sponsored retirement plans are very useful for this purpose. Otherwise you can also opt for retirement plans available in the market.

By starting early into your saving habit, your money multiplies faster due to the compounding effect. Starting early also provides more options with regard to investment avenues. It also enables you to take on more risk since there is adequate time to recuperate in case an investment goes sour. For example, assume a person sets aside Rs 1,000 towards a financial instrument each year. If the returns were 10% compounded annually, by the end of one year, the investment would grow to Rs 1,100; at the end of second year, the amount would be Rs 1,210; and at the end of a 10-year period, your Rs 1,000 would have grown to Rs 2,594.

Don’t trip on taxes

Tax planning is an integral part of financial planning. Concrete planning on taxes enables you to save as much as possible. This should ideally be done at the start of the financial year. A hurriedly done tax-planning exercise can make you opt for the wrong instruments and may also become a hindrance in yielding good returns. This should be a well-planned exercise rather than a one-off investment since the risk profile of each individual is different — what’s suitable to one may not suit the other. Know your risk profile and invest accordingly.

Most importantly, do not combine your insurance requirements with tax-saving and investment needs – invest in these instruments after careful considering your cash flow.

Protect your family

An insurance cover helps protect you and your family by providing the financial bedrock should something unforeseen such as hospitalisation, injury or death turns your world upside down. Life insurance needs to be systematically considered depending on your life stage along with current liabilities, expectation of future liabilities, number of dependents, financial goals, lifestyle etc. Since life insurance is a long-term contract, you do not need to renew it annually but have to ensure the premium is paid before due date so that those who rely on your income remain protected. Ensure that you are adequately covered so that your family will not get into financial difficulty should anything happen to you.

Less means more

Build a well-diversified investment portfolio with an asset mix that reflects your risk appetite, needs and circumstances. A well-diversified portfolio should include complementary asset classes so they can cushion your investments against the vagaries of the market and lower your portfolio’s overall risk.

The less money you spend on eating out, the more money you will have in your pocket, and in turn, save more. Cut down on the weekend eating, drinking and partying, if possible. If you spend too much money buying clothes, aim to spend less on clothes over a period of time. Yes, you can!

The author is senior director and chief operating officer, Max Life Insurance. The views expressed in this article are his own

My husband died in an accident while on duty. Apart from various payments received under the provisions of the Workmen Compensation Act, the Provident Fund Act and the Payment of Gratuity Act, the employers have made a voluntary payment of Rs 10 lakh. Is the above amount of Rs 10 lakh taxable? —Rama Devi

• According to Circular No. 573 dated August 21, 1990, the Central Board of Direct Taxes has clarified that lump sum payment made gratuitously or by way of compensation or otherwise to the widow or other legal heirs of an employee, who dies while in active service in not taxable. In view thereof, the amount of Rs 10 lakh received by you would not be taxable.

I am a retired state government officer. I don't know how to compute the taxable income while including the interest income on wife's fixed term deposits. How could I save the tax on the FDs in wife's name who is a housewife? Please also clarify whether the amount gifted by my sons to her on her birthdays, which is carrying interest too, will be excluded. If so, under which Sections? — Gurdial Singh

• An income is taxable under the provisions of the Income-tax Act, 1961 (The Act) if the source of funds from which the income has arisen can be traced to the person who has invested the amount. Therefore, in case the fixed deposits in the name of your wife are out of her Stridhan i.e. amount saved out of pin money, gift from relatives and children, income arising on such fixed deposits would be taxable as her income. However, in case the source of the amount invested in fixed deposits can be traced to you, any interest arising on such fixed deposits would be taxable as your income in view of the provisions of Section 64 of the Act. This is the general rule laid down by Section 4 of the Act for the purposes of charge of income-tax on the total income of any person.

Reference your "advice" given in The Tribune dated 28.7.2014 to a query raised by Rudresh Kumar on money gift to individual. Please let us know the applicability of the Income Tax Act to 'individuals'.

a) Any restrictions on the limit of gift money among listed relatives

b) Whose income (as far as tax liability is concerned) the gifted money (among relatives) becomes if the amount is (i) Rs 50,000 and (ii) exceeds Rs 50,000?

c) In above cases, if the gifted money becomes the income of recipient, is the total income of donor reduced by such amount in that financial year for income tax purposes?

d) Above queries pertain to gifted money among relatives as individuals. Please clarify what will happen if the gift money is received by a mother-in-law from her son-in-law who is not a listed relative. —RL Sharma

There is no limit of the amount which can be gifted by the relatives specified in Section 56 of the Act.

• The gifted amount becomes the property of the donee and therefore, income arising on such gifted amount is taxable as the income of the donee. However, in case the gift has been made to a spouse, the income arising on such gifted amount is taxable as the income of the donor in view of the provisions of Section 64 of the Act. In case a gift has been made to a minor child, income arising from the gifted amount is required to be included in the income of the parent of the minor till such time the minor attains majority.
• The amount gifted is not allowed as deduction from the total income of the donor. In case the gift is received from a person who is not a relative as specified in Section 56 of the Act and the gifted amount exceeds Rs 50,000, the entire amount is taxable as

I am a senior citizen aged 65 years and a pensioner. I have taken a personal loan of Rs 2 lakh from a bank. Since my total income is taxable, can I avail deduction on principal or interest on loan? If so, under which section? - Ram Kumar

• Section 80C of the Income-tax Act 1961 (the Act) provides for a deduction of an amount paid towards the repayment of amount borrowed for the purposes of construction or purchase of a residential house. The above deduction is permissible from the total income within the limit of Rs 1.5 lakh. In view of the fact that the amount has not been borrowed by you for the purpose as aforesaid, no deduction in this respect is permissible from your total income under any provisions of the Act.

Mediclaim or health insurance has become an important factor in our lives. It has become extremely important that we make arrangements at the earliest to meet these risks that can threaten our health and also cause heavy expenses on health care.

Let’s take a look on mediclaim or health insurance as it is usually addressed these days.

What is mediclaim?

It is an insurance against risk that is faced due to medical expenses.

When it is taken by an individual either for self, family or dependent parents, they assume a certain expense that can be caused due to any unforeseen medical requirements. It helps them meet these expenses due to sickness or injury in the event of hospitalisation.

Mediclaim is thus a contract between an insurance company and a proposer where the former agrees to provide the latter with facilities that it offers based on the defined premium amount that the latter pays.

The proposer can be any retail individual or a corporate offering to insure their employees under a group medical cover. Unlike the retail individual policies, group medical cover offered to corporates is based on the requirement and covers proposed by them for their employees.

Different types of mediclaim policies in India

• Individual
• Family floater covering an entire family under one sum insured
• Senior citizen plan
• Critical illness
• Diseases specific and surgery
• Group medical cover from corporates/employers

How to choose the best medical insurance cover?

• Availability of in-house health administrators
• Cashless facility, efficiency and fast disbursement
• Cashless hospital network across the country
• Fast reimbursement records
• Family cover option
• Claim settlement record
• Caps and sub-limits on expenses
• Pre-existing disease cover — This can range from 2 years to 4 years
• Renewal bonuses and discounts

Benefits and advantage

• Insurance against rising expenses
• Tax benefit under Section 80D n Cashless treatment
• Bonus and discounts on premium during renewal
• Free medical checkup and ambulance facility with air ambulance being new addition in some cases

What is not covered under medical insurance plans?

• Pre-existing diseases are generally excluded but at the same time some of them are also covered after certain waiting period which can range from 2 to 4 years.
• Equipment like hearing aids, lenses, detail surgery, sinus treatments
• Diseases like AIDS, venereal disease, hernia
• Suicides, ailments due to drugs or alcohol

It is important that the proposer reads and understands the brochure/prospectus in order to understand the complete policy details. Some insurance companies can include certain covers which may not be available with others. All doubts and clarifications about the preferred policy should be completely understood before it’s taken.

What are waiting periods applicable under medical insurance?

Generally the waiting period is 30 days starting with the policy inception date during which the policy will not cover any hospitalisation. But this is not applicable to emergency events such as accidents.

Prominent health insurance policies

Parivar Mediclaim from National Insurance, Family Floater Health Guard from Bajaj Allianz General Insurance, Smart Health Premium from Bharti Axa General Insurance, Health Optima from Star Health, Health Suraksha from HDFC Ergo etc.

Health cover portability

IRDA circular dated October 1, 2011, says any policyholder can transfer his/her medical insurance from existing insurer to a different insurer without having to compromise on the renewal bonuses or discounts, benefits enjoyed in the previous plan. In order to do this, it’s advisable to discuss the same with the new insurance company.

—The author is national head – distribution, Geojit BNP Paribas. The views expressed in this article are his own