Diwali Dhamaka


wealthymatters

Yesterday the Union Cabinet approved a 10% increase over the existing rate of 80%, in dearness allowance and dearness relief, which will benefit about 50 lakh central government employees and 30 lakh pensioners .

The increase will be applicable from July 1, which means the central government employees and pensioners will get a good lump sum during the festival season-a real Diwali Dhamaka.

There will be additional . 900 crores every month in the hands of central government employees and pensioners.Maybe this should help pump-prime the economy!

The increase is in accordance with accepted formula based on the recommendations of the Sixth Central Pay Commission.Under the current rules, the government uses CPI-IW data for past 12 months to arrive at the biannual dearness increase, which is computed as a percentage of basic salary. It was increased to 80% from 72% in April 2013, effective January 1 this year. After Friday’s increase, the amount rises to 90% of basic pay. This is the first double digit dearness allowance increase in about three years. The retail inflation for industrial workers between July 2012 and June 2013 was used to compute the increase in DA.

Just see how much salaries have had to increase just to keep up with inflation.

The Dam Analogy


wealthymatters.comA river and a dam across it is a nice way of visualizing one’s finances.A source of income is like a river.To save a bit of it is like building a dam across the income stream.

In real life dams are used to impound water in times of plenty so that it can be used when water is scarce.Deducting money from a salary cheque to fund one’s pension or investing regularly in a mutual fund  via a SIP , is like holding back water in the time of plenty to use when water is scarce.If a person comes by a windfall,say, by selling a business/ winning a lottery/receiving an inheritance etc. and saves/invests the money safely,it is akin to storing rainwater from a freak shower for use later. Read more of this post

Laddering


wealthymatters.comNormally,for fixed income instruments , the interest rates corresponding to longer terms are higher than those for shorter terms.However,locking in money for longer periods is not always an option.One way of ensuring a greater degree of liquidity while taking advantage of the higher rates offered for the longer tenures is laddering.

If you want to create a 5 year ladder you could buy a 1year, 2year, 3year,4year and 5year instrument .Then after the first year,renew the matured 1 year instrument for a term of 5 years.Then the following year do the same with the matured 2year instrument.Continue the process.

Laddering ensures that at least some of the higher interest rates are locked in and that the average rate is higher than the rates at the lowest point in the interest rate cycle.

If you are drawing an income from your fixed income instruments say to pay or part pay you a pension,your EMIs,a tution fee or get some passive income,laddering smoothes out the variations.

Laddering is possible with bonds,NCDs,FDs,CDs etc.

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