Personal finance lessons from demonetisation
, ET Online|
Updated: Nov 08, 2017, 01.55 PM IST
Appreciate it or criticise it, call it a political move or one done for the greater good of the country to eradicate black money, demonetisation posed challenges for all of us.
During the note ban, a lot of us, including the Prime Minister's mother, stood patiently in long queues to deposit and withdraw money that genuinely belonged to us. Many saw their financial plans and household budgets go awry.
Here are few personal finance lessons that you can learn from last year's demonetisation episode that can make you money-wise:
1. Don't hoard cash, start investing
Undoubtedly cash offers great flexibility and liquidity, but hoarding it is not a good idea. Just keep minimum the required cash in hand. Your money won't grow idling in your locker at home or in the bank account. Even for risk averse people, there are good options like Public Provident Fund (PPF), National Savings Certificate, fixed deposits and so on.
Even the contingency fund that you've created to meet unforeseeable crisis should either be invested in instruments that offer higher liquidity or at the least be kept in a savings bank account
Small business owners should also try and deal as much as they can in non-cash transactions like cheque payments or Net banking, credit/debit card payments.
2. Don't be shy to adapt tech
During demonetisation, mobile wallets and other digital payment options witnessed a surge in volume and value of transactions. The note ban was less painful for those who were comfortable using mobile wallets or e-payment options. And for those who had start from the basics of using digital payments, found the going tough.
Considering the government's aim to make India a less cash economy, going forward usage of electronic payments will only go up. On a daily basis, like in your office canteen, fuel station, and so on, use your mobile wallet wherever possible. It will not only make you less dependent on cash but it will also help you manage your money in a more efficient manner (especially if you don't make a note of your expenses) as you can check the transaction history in your m-wallet and curb unwanted expenses.
3. Use plastic money
Using debit/credit cards is not just convenient but it is much safer than carrying a huge amount of cash in your pocket. Besides, you also get to avail various cash-back offers and discounts. From paying your rent to filling fuel in your car, to online shopping, plastic money offers good incentives over cash transactions. However, when swiping your credit card, do so judiciously and don't fall in to a debt trap by not paying your bills on time.
4. Be an honest taxpayer
Cash deposits over Rs 2 lakh made during demonetisation were required to be disclosed in while filing income tax returns (ITR) for the current assessment year (AY 2017-18). Accounts that made cash deposits over the given limit were under the I-T lens and some were even served with notices to explain such high value deposits. Besides, those who had an extraordinary surge in income disclosed in the ITR during current and previous AYs were also under tax scrutiny.
Therefore, to avoid getting a knock on the door or getting a notice from the tax department, disclose your income honestly and don't attempt to evade taxes. Instead, make tax-efficient investments like ELSS, NPS, tax-saving fixed deposits and PPF.
5. Think before spending
Chalk out your monthly budget, prioritise the expenses and spend frugally. Most of the times, we end up overshooting our budget when we spend without thinking through. With less cash in hand and a cap on ATM / bank withdrawals, most of used our money consciously and it lasted longer. Hence, you should continue this practice as it will help you handle your money matters diligently. This doesn't mean that you should be stingy, it will only make you money-wise.
6. Small is big
Having a piggy bank or a money jar is not a bad idea. Some use it to keep lose money and change, while some gift it to their kids to make them money-wise. Piggy banks proved to be a boon during the note ban crisis, with lower currency and loose change helping households tide over the difficult time.
During the note ban, a lot of us, including the Prime Minister's mother, stood patiently in long queues to deposit and withdraw money that genuinely belonged to us. Many saw their financial plans and household budgets go awry.
Here are few personal finance lessons that you can learn from last year's demonetisation episode that can make you money-wise:
1. Don't hoard cash, start investing
Undoubtedly cash offers great flexibility and liquidity, but hoarding it is not a good idea. Just keep minimum the required cash in hand. Your money won't grow idling in your locker at home or in the bank account. Even for risk averse people, there are good options like Public Provident Fund (PPF), National Savings Certificate, fixed deposits and so on.
Even the contingency fund that you've created to meet unforeseeable crisis should either be invested in instruments that offer higher liquidity or at the least be kept in a savings bank account
Small business owners should also try and deal as much as they can in non-cash transactions like cheque payments or Net banking, credit/debit card payments.
2. Don't be shy to adapt tech
During demonetisation, mobile wallets and other digital payment options witnessed a surge in volume and value of transactions. The note ban was less painful for those who were comfortable using mobile wallets or e-payment options. And for those who had start from the basics of using digital payments, found the going tough.
Considering the government's aim to make India a less cash economy, going forward usage of electronic payments will only go up. On a daily basis, like in your office canteen, fuel station, and so on, use your mobile wallet wherever possible. It will not only make you less dependent on cash but it will also help you manage your money in a more efficient manner (especially if you don't make a note of your expenses) as you can check the transaction history in your m-wallet and curb unwanted expenses.
3. Use plastic money
Using debit/credit cards is not just convenient but it is much safer than carrying a huge amount of cash in your pocket. Besides, you also get to avail various cash-back offers and discounts. From paying your rent to filling fuel in your car, to online shopping, plastic money offers good incentives over cash transactions. However, when swiping your credit card, do so judiciously and don't fall in to a debt trap by not paying your bills on time.
4. Be an honest taxpayer
Cash deposits over Rs 2 lakh made during demonetisation were required to be disclosed in while filing income tax returns (ITR) for the current assessment year (AY 2017-18). Accounts that made cash deposits over the given limit were under the I-T lens and some were even served with notices to explain such high value deposits. Besides, those who had an extraordinary surge in income disclosed in the ITR during current and previous AYs were also under tax scrutiny.
Therefore, to avoid getting a knock on the door or getting a notice from the tax department, disclose your income honestly and don't attempt to evade taxes. Instead, make tax-efficient investments like ELSS, NPS, tax-saving fixed deposits and PPF.
5. Think before spending
Chalk out your monthly budget, prioritise the expenses and spend frugally. Most of the times, we end up overshooting our budget when we spend without thinking through. With less cash in hand and a cap on ATM / bank withdrawals, most of used our money consciously and it lasted longer. Hence, you should continue this practice as it will help you handle your money matters diligently. This doesn't mean that you should be stingy, it will only make you money-wise.
6. Small is big
Having a piggy bank or a money jar is not a bad idea. Some use it to keep lose money and change, while some gift it to their kids to make them money-wise. Piggy banks proved to be a boon during the note ban crisis, with lower currency and loose change helping households tide over the difficult time.
