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5 Ways to Save Money for Salaried Professionals

dateKnowledge Centre Team dateFebruary 19, 2021 views168 Views
Ways to save money for salaried professionals

The approach of a salaried individual to save money is different from that of a self-employed or businessman because salaried professionals have fixed monthly income, unlike the latter. Due to this, they have to manage savings and investment with their expenditure with a stipulated income. The most effective way to save money is by investing. For a stable and secured future, the most important thing to take care of is – our finances. A lot of people rely on saving plans, while some people choose to invest money in government saving schemes. Nevertheless, the crux is – saving money is the best way to create a financial cushion against the unexpected economical blows.

5 Smart Ways a Salaried Professional can Save Money

Salaried individuals need to consider time, risk, income growth, and return expectations as per their income while searching for the best saving plan in India. One of the biggest challenges for these people is to control their spending. The more control on spending, the more money can be saved that will eventually benefit you in the future.

Here are five smart ways a salaried professional can save money:

1. By Investing in ULIPS

Unit linked Insurance Plans (ULIPS) is a type of life insurance plan that provides safety of insurance protection with the opportunity of wealth generation. A part of the investment goes towards life cover, and the rest is invested in a fund that further funded in stock or bonds. It is considered as one of the most popular investment plan in India for a person to enter the stock market with the additional benefits of life cover.

Benefits of Investing in ULIPs

  • Life Cover

    ULIPs provide the benefit of a life cover coupled with investment. The life cover will benefit the family of the policyholder in case of their untimely death.

  • Income Tax Benefits

    A salaried individual who wants a life cover with additional tax benefits may consider investing in ULIPs. Under Section 80C, the premium paid towards a ULIP is eligible for a tax deduction. Furthermore, the returns out of the policy on maturity are exempt from income tax under Section 10(10D) of the Income Tax Act.

  • Long-term Goal Benefits

    ULIP is a good investment option to save money for financing long-term goals like buying a house, a new car, marriage, etc. The best returns will be generated if you choose a longer policy period.

  • Flexibility of a Portfolio Switch

    ULIPs are usually designed in a way that allows the policyholder to switch portfolio between debt and equity-based on risk and knowledge of the performance of the market.

2. Endowment Plans

An endowment plan is a regular money-saving plan that helps build a corpus and give guaranteed maturity benefits along with bonuses. It is a kind of insurance plan designed to provide life coverage protection and the chance to grow wealth through systematic savings. It is one of the saving options available for people looking to invest in insurance cover as well as investment and savings plans in India.

Benefits of Endowment Plans

  • Better Returns

    It offers better returns on investment as compared to fixed deposits or simple life insurance policies.

  • Tax Benefits

    This plan is a good tax-saving option. Under Income Tax Act, Section 80C, endowment plans have tax benefits on the annual premium, and under Section 10(10D), the maturity claims of endowment plans are completely tax-free.

  • Accidental Riders

    Endowment plans provide the option to add accidental riders that can further enhance the cover. You have to pay a marginal premium to opt for riders. There are various reasons to add a rider to your life insurance policy. And one of them is – it gets more optimized to suit your needs.

  • Short-period Premiums

    These plans are ideal if one wants to pay a premium for a short-period and wants to benefit from the plan over the policy term.

  • Liquidity

    These plans are liquid. In case the policyholder survives the policy term then, the sum assured amount and other bonuses accumulated during the term period are paid. And if the policyholder passes away during the policy term, then the death benefits are paid to the nominees. The benefits include sum assured and additional vested bonus.

3. Money-back Plans

Money-back plans are very popular insurance policies as they offer dual benefit of insurance and redemption of money at regular intervals. These plans are mostly opted by individuals who require money at certain intervals of life to meet short-term as well as long-term financial requirements.

Money-back plans are very popular insurance policies as they offer dual benefit of insurance and redemption of money at regular intervals. These plans are mostly opted by individuals who require money at certain intervals of life to meet short-term as well as long-term financial requirements.

Benefits of Money-back Plans

  • Protected Savings

    The returns in money back plans are guaranteed. Thus, savings in this plan remains safe as the premiums paid are not linked with the ups and downs of capital markets that are uncertain.

  • Life Insurance

    This money-saving plan also provides life insurance cover. In case of death of the policyholder, the nominees get the sum assured.

  • Tax Savings Benefits

    Under Section 80C, all life insurance premiums under the money-back policy are eligible for tax deduction up to a specified limit, as long as the premium is less than 10% of the sum assured. The maturity amount is exempted from tax deduction at source as long as the sum assured is more than five times the premium paid for the policy.

  • Secured Investment

    Money-back plan is an ideal investment option. This plan safeguards your investment against the risks.

4. Monthly Income Plan

A monthly income plan (MIP) is a type of mutual fund strategy that generates stable income through dividend and interest cash flow. The plan aims to provide a steady stream of income that is suitable to retired persons or senior citizens who do not have other substantial sources of monthly income. However, the monthly income plan is prone to market risks, and the investor can expect a seedy stream of income when the market is strong but could face downstream as well.

Benefits of Monthly Income Plan

  • Retirement Corpus

    The regular stream of monthly income can be used to supplement your earnings, which will help you have a worry-free retirement life.

  • Build a Legacy

    It is an insurance cum protection plan that offers a long-term investment opportunity to help you build a legacy for your child.

  • Loan Facility

    You can opt for loan facility to help you manage any contingency.

  • Maturity Benefits

    On survival till maturity, the policyholder will receive added annual bonus along with final bonus (if any).

5. PPF/EPF

PPF (Public Provident Fund) is a government scheme meant for both salaried and self-employed individuals. It offers financial security, especially during your retirement days.

EPF (Employee Provident Fund) is a scheme designed exclusively for salaried professionals. Under this scheme, the employee and employer contribute 12% (or the minimum of Rs. 780) of the salary amount every month. Both PPF and EPF are eligible for tax exemption under Section 80C. This plan is a must-have for salaried professionals.

Benefits of PPF/EPF Schemes

  • Tax Benefits

    Returns earned from a PPF account are tax exempted and investments in EPF account qualifies for tax deduction under Section 80C of the Income Tax Act.

  • Acts as Retirement Savings

    These saving schemes can help you build a retirement corpus right when you start earning. Having solid savings for the retirement days is one of the most important financial tools.

  • Return on Investment

    Both the saving schemes offer returns on investment. The interest rate on the investment made may vary between the schemes.

A salaried professional needs to save money to achieve short-term and long-term financial goals while keeping up with the evolving needs. Keeping the risks in mind, one should find the best money saving plan that will suit their financial circumstances. Weigh the pros and cons of all the saving plans and schemes before investing your money. And it is always considered wise to not put all the eggs in one basket. Hence, create a diverse investment portfolio to enjoy stable returns on your investment while also creating a saving fund.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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