With the recent fall in oil prices and a continuing correction in commodity prices, pundits seem to be speculating on whether consumers will see benefits of these developments, due to the corresponding decrease in airfare or petrol prices.
The Indian economy is witnessing considerable shifts that are in turn responsible for pushing the retail prices down. The key attributes being
- Fall in oil prices and other commodities globally
- Falling interest rates in India
- E-commerce companies facilitating new and lot more efficient business models
- Potential cooling of real estate prices in view of commodity price correction
Falling prices is the perfect opportunity for Indian consumers to enjoy a dramatic impact on their financial savings. India consumers are being very careful in terms of spending, as per their regimen. However, instead of being cautious, the need of the hour is to be smart.
The identification of simple measures to cut down expenses helps Indian consumers enhance their saving and build a healthy corpus of funds, without compromising on the standard of living.
2 Ways to save additional 3.7 crore rupees over a period of 20 years
#1: Take full advantage of home loans (Save 2.7 Crores+)
With falling interest rates, home loan interest rates are also likely to start falling. It is essential to keep an eye on existing home loan rates. If the current loan provider does not drop rates, do shop around a bit. There are plenty of online rate comparison portals working in the best interests of consumers.
Reduce your tax burden with the 80C exemption on home loan repayment
In the last budget, the government increased the annual exemption limit for interest on home loans to Rs. 2 lakh and Rs. 1.5 lakh for principal repayment. These limits may increase in the coming years, especially interest exemption limit, in line with developed markets like US.
If both husband and wife are working, a joint ownership of loan can help in doubling the tax advantage.
Essentially, if the loan amount is Rs. 60 lakh and an EMI of approximately Rs. 6 lakh per annum is paid, taxpayers can save around Rs. 2 lakh per annum, which translates to roughly Rs 2.7 crore over 20 years @14% annual returns (equity returns over the long term being 14-16%)- calculator.
Rental increments too high?
If the existing rental contract mentions a 7% increase in rent each year, reconsider negotiations with the proprietor. With inflation expected to come down, this 7% annual increase in rents may not necessarily hold true.
#2: Rethink personal transport (Save 1 crore+)
Personal transport is the next big expense to the Indian consumer. A few emerging trends can go a long way in managing the expenses better:
Use radio taxis efficiently
Radio taxi services are trending, notwithstanding the current travails of this up and coming industry.
Radio taxis can significantly help in reducing monthly travel expenses, as using these services entails no spending on driver’s salary, fuel, and maintenance.
Saving of Rs. 1 lakh per annum, assuming some increment each year, leads to over Rs. 1 crore saving over 20 years.
Re-evaluate the need for a second car
It is essential to re-evaluate the need for a second car. Better planning can go a long way in alleviating the need for one.
Assuming the cost of the second car to be around Rs. 5 lakh and a depreciation of 65% over a 5-year period, this investment would mean a loss of Rs 3.5 lakh approximately.
Assuming this Rs. 5 lakh has been invested in equities, with a potential return of 15% pa, another Rs. 5 lakh could have been added to the principal investment.
Buy second-hand cars
Refer to a number of online portals in this segment; several fantastic deals can be availed in the second-hand market. Some of the used car sites have made the process of purchase very smooth across cities, with a list of cars for sale, along with their prices.
Do not buy cars that depreciate dramatically in year 1-3 of purchase. Most good models have a resale value that is more than half the price of purchase even after 5 years.
According to recent market prices, a 5-year-old premium sedan costs Rs. 6 lakh, while new one of the same model is around Rs. 18 lakh. The difference, if invested well, can become Rs. 1.6 cr over 20 years @14% returns.
One more thing...
Most importantly, these ‘smart savings’ need to be invested in financial assets that generate excellent, tax efficient returns over time. Ultimately, A few resourceful choices can lead to a dramatic acceleration in the journey towards financial freedom.