Why you also need Financial Freedom

 

Many people make the mistake of thinking that all the challenges in their lives would dissipate if they just had enough money. Nothing could be further from the truth. Earning more money, in and of itself, rarely frees people.

It's equally ridiculous to tell yourself that greater financial freedom and mastery of your finances would not offer your greater opportunities to expand, share, and create value for yourself and others.

Financial freedom does not end at collecting a huge corpus of money. Accumulating money is a means to attain a sense of security. It is a pre requisite to get freedom, and not freedom by itself. It is NOT THE END. You start exercising your freedom after you have taken care of the money part in your life, else most of your life would be devoted in the worship of money and related pursuits.

For a moment, let us forget about the money part.

Let me ask all of you a very simple question:

"What does financial freedom mean to you ?"

Close your eyes and imagine for a moment that all your household expenses were met through "some" source of money other than your job, business or wherever else you are actively involved with today, and there was still some left over money at the end of the month. If you get that kind of security, what change would that bring to your life? How would that change what you are doing today?

"What would you stop doing? and what would you start doing ?"

Are there some old cherished forgotten dreams that flare up? To me, that would be real freedom...freedom to think, freedom of time, freedom of money, freedom to do what you truly want to do in your life, something that you are really passionate about. The passion could be about pursuing your old forgotten hobbies, helping others, contributing to the society, spending more time with your family or anything else that you have always been thinking about but unable to pursue because your family security or lack of money just did not allow you to.

This personal freedom from financial constraints in life can change the course of your life. Personally, i feel , it is the single most significant goal that everyone must strive for.

Here are some quotes from one of my favorite authors on this subject. I grew up reading some of his bestseller books which ultimately changed the way i used to think about money.

Robert Kiyosaki (of "Rich Dad Poor Dad" fame) has been an inspiration for me. Here is how he feels about money and financial freedom:

1. Never say you cannot afford something. That is a poor man’s attitude. Ask HOW to afford it.

2. Find out where you are at, where you are going and build a plan to get there.

3. If you want to go somewhere, it is best to find someone who has already been there.

4. Education is cheap; experience is expensive.

5. When going into business don’t just find great partners, BE a great partner.

6. When people are lame, they love to blame.

7. The hardest part of change is going through the unknown.

8. The only difference between a rich person and poor person is how they use their time.

9. Face your fears and doubts, and new worlds will open to you.

10. Your future is created by what you do today, not tomorrow.

I really like the last one - If you have been thinking about truly getting rich, you have got to start today. There is so much help available all around you. Push yourself. Motivate yourself. 

You are making your own future ...and you are doing it every day, this hour and this very single minute. Your actions today are defining your destiny of life.

Wake up and fight for your own personal financial freedom. It is truly worth it !!

Cheers

Manoj Arora

Know more about LTA or LTC Claims

Most of us do take out time for at least one vacation in a year with our family. While this is good, so many times we just fail to take the tax benefits provided to us by the government. There can be various reasons for not availing tax benefits like these. Either we are afraid of the paper work, or we are too busy otherwise, or we do not realize the importance of saving taxes or it may be just that we are not fully aware of the rules pertaining to Leave Travel Concession (LTC)/Leave Travel Assistance (LTA)

Difference between Financial Year and Assessment Year

 

Sometimes, things as simple as the difference between the Financial Year (FY) and an Assessment Year(AY) can give you the right perspective to look at things.

We studied in detail about the Financial Year / Fiscal Year, its origin and relevance in different countries and continents across the globe in one of our earlier post this month ( What is Financial or Fiscal Year ). Today, let us try and understand how this Financial Year is different from an Assessment Year.

Let us just summarize what we understood about Financial Year or Fiscal Year:

A Fiscal Year (or a Financial Year or Accounting Reference Date) is a 12-month period used for calculating annual ("yearly") financial reports in businesses and other organizations. In many jurisdictions, regulatory laws regarding accounting require such reports once per twelve months, but do not require that the twelve months constitute a calendar year (i.e. January to December).

The income earned in a year is always assessed and taxed in the next year. The year in which income is earned is called Financial Year and the year in which it is assessed and taxed is called Assessment Year.

As an example, the income of Financial Year 2011-12 will be assessed for the taxes to be paid and will be taxed in Assessment Year 2012-13.

So, the whole concept is to earn income in a particular year and pay tax on it and file your return the next year . Also remember that all tax laws are framed for Assessment Year and not for Financial Year i.e. reference to any year in Tax laws will means reference to Assessment Year. Presently, we are in Financial Year 2012-13 and Assessment Year 2013-14. This means that we are earning income in the year 2012-13 and we will be paying taxes on this income in the Assessment Year 2013-14.

Some of you who work as employees might get confused with what i just said. Hold on, there are exceptions to the above rule, and your salary income happens to be one of the exceptions. In general, the above rules apply to all incomes except certain specific cases like Tax Deduction at Source (TDS) and some businesses paying Advance Tax. In these exceptional cases, you pay tax in the same year as the financial year i.e. the year in which you earned the money.

However, even in these cases, remember that the Income Tax returns are filed in the Assessment Year only. So, if you have a source of income other than your salary (salary gets tax deducted at source) like bank FD interests, capital gains through stocks, mutual funds and property etc, then in all such cases, you would be declaring this income only in the Assessment Year and also paying taxes in the Assessment Year only.

In nutshell, an Assessment Year allows you some freedom of time to assess your correct tax liability to be paid to the government for the money that you earned in the Financial Year.

As you approach towards Financial Freedom, your portfolio would mostly consist of income which is passive in nature i.e. it does not come by working actively for your salary every year. Your nest egg would be giving you most of the returns. Most of the income for a financially free person comes from interests and capital gains, and hence, the tax is mostly paid in the Assessment Year. :)

Cheers

Manoj Arora

Related Post Titles:

Financial Freedom 

Financial Year

Income Tax 

Manage Money

 

 

 

Tax Exemption Provision for Capital Gains through Property

 

Real Estate Capital gains is one of the biggest single transaction gains that you would ever have in your portfolio. If the Capital Gain is high, the tax liability would obviously be one of the highest. In one of our recent posts, we studied in detail about the tax liability on capital gains on account of real estate or property. ( Preserve your Property Gains ). 

Hence, it becomes all the more important to understand what you can do with the capital gains that we have so as to minimize or completely eliminate any such tax liability. A small understanding of facts here can save us lacs of rupees in terms of tax savings in a single transaction.

Here are some facts that you should be aware of :

1) All tax exemption provisions for capital gains through sale of property (as listed in the subsequent points) are applicable only if you have incurred Long Term Capital Gains. There is no tax exemption possible for Short Term Capital Gains. (Refer Preserve your Property Gains ).

2) Re-invest in buying new property : If you invest part  / full amount of your capital gains in a new residential house property, then you are 100% exempted from taxes on Capital Gains. Remember that this re-investment needs to be done between the time period of either a year before or two years after the sale of the original residential property.

3)Re-invest in construction of a new property : The same benefit as given in pt 2 above is also available if you invest your capital gains (either partial or full) for the construction of a new residential property. Remember that the new property construction has to be done within 3 years of the sale of the original house property.

4) Partial Capital Gains Re-investment : If you invest, lets say, 70% of our capital gains, you get tax exemption on the 70% part of your capital gains. You will have to pay long term capital gains on the remaining 30% gains.

5) The newly acquired residential property (as in pt 2 above) has to be held for at least 3 years. If you sell the new property in less than 3 years, then you will have to pay tax on the entire capital gain that was tax exempted earlier and also the applicable capital gains on the newly acquired property.

6) You can also save taxes on capital gains by investing in specific bonds issued by National Highway Authority of India (NHAI) and Rural Electrification Corporation. This investment needs to be done within a maximum of 6 months of the transfer of the original house property. Also, these investments in bonds cannot exceed a maximum limit of Rs. 50 Lacs. Just like re-investment in property, the investment in bonds has to be held for a minimum period of 3 years.

7) While you are doing these re-investments, some of which may take time to materialize (may be even years), where do you hold your capital gains in that interim time period which tells the government that you intend to reinvest these capital gains within the time frame given in all the above options, and are hence not liable for taxes? The right procedure for that is to open a separate CGAS account (Capital Gains Account Scheme). You need to put all your capital gains during a financial year into this CGAS account (which can be opened with any bank) before the end of the financial year in which you did the sale of your property. The amount deposited is deemed to be earmarked for purchase or construction of a new residential property, and is hence not taxable during that year.

In nutshell, never sell a property for capital gains in less than 3 years. 

Once you have crossed the 3 year threshold, there are so many options available to re-invest your capital gains to avoid taxes.

Cheers

Manoj Arora

Related Post Topics:

Home

Tax Rebate

Income Tax

Financial Freedom

Dream just a little more

 

Whenever i ask you to dream, do not take me wrong. Of course, you need to be practical as you go through your life. You also need to operate intelligently and plan your life well. It is also extremely important to use common sense before taking any decisions. Any foolish risks can definitely lead to some difficult consequences for you and your family. You also cannot be very selfish and just ignore your immediate responsibilities towards your family and society.

Having said all this, i also want to state that you should not be afraid of failures too. Do not regret the consequences of not living the life of your dream. That might just turn out to be the biggest regret of your life. Do not always be so reasonable and practical that

Dont regret while you die

 

Bronnie Ware, who has been a nurse by profession, has shared incredibly special times with aged people during the last three to twelve weeks of their lives. 

In her blog "Inspiration and Chai", Bronnie shares that she  experienced a variety of emotions, as expected, denial, fear, anger, remorse, more denial and eventually acceptance. Every single patient found their peace before they departed though, every one of them.

When questioned about any regrets these patients had or anything they would do differently if given a chance to live their lives once again, common themes surfaced again and again.

Here are the most common five:

1. I wish I'd had the courage to live a life true to myself, not the life others expected of me. 

2. I wish I didn't work so hard.

3. I wish I'd had the courage to express my feelings.

4. I wish I had stayed in touch with my friends.

5. I wish that I had let myself be happier.

These reasons and her blog attracted so much attention worldwide that it culminated in a book " The Top 5 Regrets of the Dying". I would encourage you to go to her blog and read in detail about all these regrets because these will definitely help you get the perspective of how people feel at the end of their lives and what matters most to our lives. We can take a learning, and also make required corrections in the way we approach our lives.

While all these 5 regrets are so heartwarming and true, i want to specifically focus on one of these regrets as a topic of discussion for this post - "I wish I didn't work so hard".

If you go on to read her blog, she describes more about this regret specifically:

"This came from every male patient that I nursed. They missed their children's youth and their partner's companionship. Women also spoke of this regret. But as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence."

I see most of my friends around me so engrossed in the "treadmill" or a "rat race" that it is truly worth halting for a moment and harping upon the fact that it is very likely to become a "regret" by the end of our lives, as it did with "all" male patients and "almost all working female" patients she nursed. 

We may still try to ignore this known fact that life has to be much more than earning money for the 2-5 people in your family. It has to have specific goals beyond your immediate family needs - goals that provide you bliss, true happiness and a reason to exist on this planet. You have got to find those goals and dreams if you have not found them yet, lest you might not even be lucky enough even to express the regrets of your life to someone like Bronnie Ware.

We do not know the last day of our lives. It could be 50 years from now. It could also be tomorrow. No one knows. I am not trying to inculcate a fear of death in you but i definitely want to push you so that you do not keep procrastinating this critical aspect of your lives and have a sense of urgency towards creating some worthwhile goals for yourself - goals that go beyond your daily treadmill of earning money. Do not breathe easy till you have found those goals. 

While i was fortunate enough to identify my dreams / goals almost 10 years back, the biggest obstacle in front of me, at that stage, that was hindering me from going all out in pursuit of my dreams was the fact that i was not sure of who was going to take care of my family if i start pursuing my goals. I have a responsibility towards my spouse, my parents and my children. I just cannot ignore that responsibility in pursuit of my dreams. It is at that stage i realized that i need to find a solution to this obstacle first. 

I read thousands of books, explored hundreds of websites and within 2 years i realized that the solution is in my hands. It is at that stage i started off on my journey towards financial freedom. I realized that financial freedom may not be an end goal but it can definitely become a means to help me achieve my end goals. You can achieve it too. If you want to be "free" in life so that you can pursue your dreams, make sure you are able to take care of your family first by achieving financial freedom. 

If you are thinking that it is too difficult, then let me re-assure you that anyone can achieve financial freedom within a span of 6-8 years even if you start from scratch. It is a matter of discipline, knowledge, planning and execution. If you are serious about not "regretting" at the end of your life, this will be your first step in pursuit of your dreams. My upcoming book "From Rat Race to Financial Freedom" will guide you step by step on how to achieve the same.

I sincerely wish you all the best to be able to find your dreams and then also be able to chase them.

Regards

Manoj Arora

Related Posts:

Dreams

Goals

Rat Race
Financial Freedom

What is a Financial Year or Fiscal Year

 

What is Financial Year

This is also termed as a Fiscal year in many countries. This is typically used for calculating annual ("yearly") financial statements in businesses and other organizations. Fiscal years vary between businesses and countries. The "fiscal year" may also refer to the year used for income tax reporting.

Does it vary across countries

Yes, it does vary across the world. There is no globally consistent mechanism for a Financial Year. Here are some glaring examples

In India, the government's financial year runs from 1 April to 31 March (Example 1 April 2012 to 31 March 2013 for the current financial year (2012–2013).

The U.S. government's fiscal year begins on 1 October of the previous calendar year and ends on 30 September of the year with which it is numbered. For example, the United States government fiscal year for 2013 ("FY 2013" or "FY13") is from 1st October 2012 to 30th September 2012

The Australian government's financial year is 1 July – 30 June. The year ending on 30 June 2011 is referred to as "financial year 2010–11" or sometimes just "financial year 2011". This applies for personal income tax and the federal budget, and is the standard for all financial entities in the country.

In China, the fiscal year for all entities starts on 1 January and ends 31 December, consistent with the calendar year.

In the Arab Republic of Egypt, the fiscal year starts on 1 July and concludes on 30 June.

Why Financial Year has to be different from a Calendar Year

Every country has some logic for start and end months for the fiscal year. This logic is primarily based on some historical and cultural reasons and has continued till date.

e.g. These are the reasons why financial year starts in April in India.

1. India was ruled by British for around 150 years, who followed the accounting period of April to March after the adoption of Gregorian calendar system of accounting.

2. Harvesting season starts in April. Being an agricultural country, money starts flowing into the hands of agriculturists and related marketeers only in April. During the British rule, since most of the Britisher's taxes were from the crops, the ruling government prepared its annual budget keeping these crop patterns in mind.

3. Almost in all parts of India, regional new year falls around 13th or 14th April. That is why the Govt. fixed 1st of April as new financial year.

4. One of the other reasons why fiscal year start and end differs from the calendar year start and end (ie Jan to Dec) is also to avoid "year end activities" like X-mas, New Year celebrations etc and financial accounting activities to clash at the same time.

In the next post, i would try to distinguish the Financial Year with the Assessment and Calendar Year.

Happy reading

Manoj Arora