Like it or not Demonetisation is a done thing. The genie has been released from the bottle and there is no going back now. Is it a good genie or bad one is subject to opinion and opinions have been coming thick and fast over the past month and a half from all over. But it is out of the question and impossible at this stage to rebottle the genie. The fact, however, is that the move has indeed touched everyone in some form or other and cannot be ignored. And this gives us a unique opportunity to sit back and have a careful appraisal of our own lifestyles, earnings and expenses; of savings and investments; of plans and the future. For more often than not young people in their fast lanes scarcely have time to think on these matters. Now take the opportunity to do the same.

I am a senior citizen and my parents lived in an era marked by everything completely opposite of what it is today. The country was under the yoke of foreign colonists; there were few industries, India was mainly an exporter of basic raw materials, mainly cotton indigo etc; it was the age of shortages, famines, poor income and money supply, extensive barter and informal exchange of goods and services, everything manufactured had to be imported; rationing was in for almost everything. Naturally, this was the mindset of our elders which influenced us also. Which meant frugality, careful spending, saving every bit, not just money but everything. You won’t believe it, but when I was a schoolboy, in India EVERYTHING had to be imported – pens, pencils, safety pins, sewing machines, bicycles…!

On the contrary, money supply is abundant now (except for the current aberration); things are available in plenty, manufactured in the country with competition pushing prices down, choices abound for spending; and spending is quite easy for the younger public – through cards. And they do spend a lot, apparently without any thought for the ‘pauper week’ at the month end. Perhaps it is time for you to examine this purposefully. Cashless transactions help you to trace the spending occasions, the avenues, categories, amounts and trends. Could you take a critical look at these and confirm which of these are really necessary and which ones are nor; and perhaps which ones can be deferred. You could gain a lot of insights about your own habits and that could set a precursor for possible change patterns.

Earnings are more or less defined or you know the upper and lower limits. Once you get a grip on the spending the surplus has to be carefully guarded, saved and put to proper use. And yes, make it a point to leave some surplus every month end. I have seen scores of youth with almost nothing on hand after all those splurging. What should be your priorities?

People working the in the private sector often do not have safety nets and have to build their own. Public Provident Fund (PPF) is the most preferred one. I would suggest that every employed (or even unemployed, if he/she can manage it) should open a PPF account with the nearest PSU bank. You can deposit amounts ranging from Rs 500 to Rs 1,50,000 per year every year. It runs for a period of 15 years and the interest on the accumulated period gets added every quarter. This becomes an almost compulsory saving and even without you being conscious of it accumulates to a good sum which could even surprise you at the end. It is very easy to operate and has a lot of other facilities like provision for taking loans, partial withdrawal, recycling of withdrawals into investments in PPF itself etc. Another attraction is the Exempt-Exempt-Exempt feature, meaning the amount invested in a year is exempt from tax, the interest accrued is exempt from tax and the eventual withdrawal is also exempt from Income tax. This is the only saving that enjoys this benefit.

The next one you should think of is the National Pension Scheme. Usually, employees in sectors than Government do not have pension facility. That being the case it becomes essential for you to start building up a sound corpus for post-employment income in the form of pension. This is also fairly easy to operate and investments up to 50,000 per year is exempted from tax. The income accumulated on this on account of the number of years, type of investments made with your contribution is varied and yet would be good enough for the sacrifices made.

Insurance should be the next thing on your mind. Somehow insurance has a bad name in our country mainly due to bad selling by the agents. With competition, things have improved and the establishment of official Insurance Regulator has made things more transparent. You should think of leaving sufficient support for your family on the occurrence of anything unexpected. It is not just life but accident, sickness, any other material loss etc. Be aware and insure yourself. This is tax deductible, but do not consider it only as a tax deduction or investment matter, but something much beyond, that of providing support to your loved ones in these largely scattered unit family setup.

Next in line should be your savings with a view to growth and wealth accumulation. The best option for this is Mutual fund offerings. There are a large number of Mutual Fund operators provident a bewildering array of schemes suited for every purse and mindset. These are now well regulated and a good amount of information is available in the public sphere for you to evaluate and choose. It makes sense to save regularly through these.

In course of a few years, you should think also of planning to buy your own house. This would be a major investment needing considerable planning and research. Due to demonetization and passing of the Real Estates Act and also the proposed swoop down on benami properties the house prices have fallen substantially and are also subject to certain regulations.

In the next few instalments under this thread, more details and guidelines on all the above investments and more would be coming.

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Author: Prof. A.V. K. Murthy (EMPI Business School)

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