shilpa

This is a guest post from Shilpa at Under the Rainbow. Though Shilpa claims that “she knows zilch about financial planning,” her posts always prove the opposite. In this post she explains why you really ought to be careful when you act as a reference for someone else’s financial dealings.

I learned this lesson the hard way. A colleague of mine wanted a personal loan and asked me if he could use my name and number as a reference. Having known him for a long time, I agreed. A few months later he quit the company, quit the city, and changed his mobile number. We lost contact.

And then started a slew of calls from the bank wanting to know his whereabouts. Since I had no idea, I said so but the calls didn’t stop. Even now, after more than two years, I get these calls when I am in the middle of a meeting, driving, or trying to put my baby to sleep. Each time a different person calls and I have to explain the situation all over again.

No amount of mails, scraps, and pokes have yielded any response from this colleague. I do not want to change my mobile number because of someone else’s wrong doing. Sigh! I guess I’ll just have to answer these calls until the bank marks this colleague as a defaulter and forgets him.

In this day and age, you really need to be careful about who you act as a reference for.

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

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Awareness Fridays: An Introduction to Gratuity

by Vinaya HS on July 17, 2009

in Finance

This is a guest post from Shilpa at Under the Rainbow. Though Shilpa claims that “she knows zilch about financial planning,” her guest posts never fail to prove the opposite.

Gratuity is a favor or gift, usually in the form of money, given by an employer to an employee in return for the employee’s loyal service. It is an employer’s way of thanking an employee for his loyalty. As per the Payment of Gratuity Act 1972, a company with ten or more employees should pay fifteen days’ salary (i.e. Basic + Dearness Allowance) to the employee on completion of a minimum of five years of uninterrupted service at the time of separation (by the way of resignation or retirement or death).

Gratuity up to Rs 350,000 is exempt from income tax. For a government employee, any amount is tax free. In case of death of the employee, the entire Gratuity is paid to the nominee without any tax deductions. An employer can also voluntarily choose to pay more Gratuity, but that amount would be taxable.

Here’s a simple example:

Mohan has resigned from ABC Pharmaceuticals after twenty years of continuous service. At that time, his Basic salary was Rs 22,000. His average number of work days per month was 22. The Gratuity payable would therefore be (Rs 22,000 / 22 days) * 15 days per year of service * 20 years of service = Rs 300,000.

I’d love to hear from your readers if they’re aware of any real examples — say if a family member or friend has received Gratuity.

Awareness Fridays is my initiative to spread awareness on topics relevant to personal finance — every Friday. I urge you to take some time off and absorb this information — it’s pretty useful. And, as always, do spread the word if you find this useful.

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Tweets on 2009-06-24

by Vinaya HS on June 24, 2009

in Finance

Yesterday, I talked about why it makes sense to have a higher basic pay as part of your salary? My friend and guest blogger Shilpa immediately took my calculations forward in order to determine what difference the basic pay would make to your take home salary.

Grab a copy of her calculations.

What do you think?

Thanks Shilpa. Do you still claim to know zilch about financial planning?

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This is a guest post from Shilpa at Under the Rainbow. Though Shilpa claims that “she knows zilch about financial planning,” her post below proves the opposite. This story-style post on personal finance is the first of its kind on this blog and is the perfect complement to my posts on EPF.

In 1993, Mr. and Mrs. Parasher, aged 45 and 43 respectively, both government employees had just paid off their home loan. They had three children — a son studying in class eight and twin daughters studying in class five. Although Mr. Parasher was setting aside small amounts for retirement for some time, it was now that he thought is the right time to start serious retirement planning.

At that point, Mr. Parasher’s basic pay was about Rs 5,000 per month. 12% of his basic was being cut from his monthly gross towards EPF, his company was contributing an equal amount, with the total contributions being compounded at 8-9% every year (variable annually).

The first step Mr. Parasher took to secure his retired life was to voluntarily contribute to his EPF account over and above the standard 12%. He increased his contribution to EPF to about 18% (12% EPF + 6% VPF) of his basic. The company still contributed 12% of the basic. With time came promotions and salary hikes. He took advantage of this and gradually increased his VPF percentage.

In 2000, Mrs. Parasher took a voluntary retirement from service and that fetched her a sum of rupees seven lakhs. At that time, their son was pursuing Engineering degree and the daughters were still in school. The Parashers set aside this money for their daughters’ education and marriage.

Early last year, in 2008, Mr. Parasher retired. At that time, his basic pay was about Rs 25,000 per month and his VPF contribution was about 80% of the basic. He now draws a pension amount of over Rs 22,000 a month — good enough to lead a decent lifestyle.

VPF or Voluntary Provident Fund is not applicable only to pensionable jobs. Since the PF interest is compounded annually, it is a good idea to contribute over and above the EPF and transfer the account when you move across companies. You will have a sizable sum at the end of your work life.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

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