Goal
Monthly inflow from investment is greater than outflow (net positive cashflow).
A ballpark figure is 25 times annual expense in savings (considering 4% interest rate).
0% Tax bracket
- Earn more
- Spend less
- Build a corpus for one year expenditure
- Open a savings account with highest interest rate, sweep-in facility and minimum AMB/AQB requirement.
- Invest in ELSS for tax saving if you're in the top threshold
- No FDs/RDs - you need liquidity
- Always invest in Direct MFs including ELSS. These have lower administrative cost (hence higher returns) compared to regular funds.
- Get a credit card. It's easier to dispute fraudulent charges on a credit card than on a debit card. Always pay full bill amount and not minimum due. Note - sometimes the perks on a credit card are more than the annual fee. So shop around. Also, it's easier for a salaried person to get a credit card than a self-employed or retired person.
10% Tax bracket
- Follow all the points for 0% tax bracket
- No FDs/RDs - instead use liquid MFs for better post tax returns
- Buy a house with home loan (never on a personal loan) which is ready to move in close to your workplace. If you do, stop buying ELSS and pre-pay to avoid tax as much as possible. Also buy a term insurance plan more than the house cost to cover for any emergency. Note - maintenance, electricity and property tax are regular costs on a house.
20% Tax bracket
- Follow all the points for 10% tax bracket
- Get a trading plus demat account
- Invest in equities (when market is high) choosing carefully
- Invest in index fund (when market is low)
- Buy a car if your company provides reimbursements for fuel and/or driver. Note - new cars have higher insurance cost.
Insurance
- Don't buy money-back insurance policy.
- Buy health insurance till you have accumulated money equal to the insurance coverage.
Miscellaneous
- Plan major purchases during Oct-Dec to avail various Diwali-Christmas discounts.
- Beware of floating-rate loan. In most cases, they only float upwards. It requires special intervention and multiple follow-ups for it to revise downwards.
- Mutual funds are subject to market risk - even debt/liquid funds (cf. Mar. 20, 2020).
