Simple decisions add up to a big sum in personal finance. Today, I will tell you 5 simple ways to make extra money that would put about 15 lacs in your pocket over 50 years of adult life. I did it and it working like a magic. Check out if you can do the same or better.

Opt for direct mutual funds for extra money

You should be investing in few equity mutual funds for long run to beat inflation comfortably and build wealth. If you are not investing in mutual funds, you may want to rethink, read here.

Why?

The critical thing you need to do it check your statement or investments online and move them to a broker than offers a direct mutual fund option. Direct means you do not pay the agent or full-time broker 0.5 to 1% fees on your invested value. Think about it. If you have invested 10 lacs in say HDFC mutual funds, at the time of investment or exit the fund house HDFC will charge a fee ranging from 1% to 2% on 10 lacs i.e. 5000 to 20000 Rs, about half of it goes to the agent or full-service broker. Therefore, opt for direct mutual fund and save around 0.5% to 1% i.e. 2500 to 10,000 Rs for every 10-lac invested.

How?

Move to a discount broker such as Coin platform by Zerodha for mutual fund investments and they do a great job at offering direct ONLY mutual funds.

Submit form 15 H/G on time for extra money

Who is eligible?

This applies only if your total taxable income is estimated to be below the minimum threshold of 2.5 lacs (3 lacs for senior citizen) then you can ask the financial institutions (bank fixed deposit, corporate fixed deposit, etc.) not to withhold or deduct tax on your interest amount. Form 15G is for individuals (below 60 years) or HUF. More information about HUF here. Form 15H is for individuals above 60 years.

Why should I submit Form 15 G/H?

Let’s take an example. If you invested 30 lacs @8%, your income will be 2,40,000 Rs. The TDS will be 24,000 Rs unless you submit form 15G/H. You can only get this 24,000 back in September following July when you file the tax return. Due to unnecessary TDS for income below minimum threshold, you not only have to file the returns, but you lose on about 1500 Rs. Of compounded interest on 24,000 rs if you had invested it. If husband and wife both are lower taxable income, with 15H you will make Rs 3000 more each year. Remember – the income tax department does not pay you interest while returning 24,000 Rs!

Choose debt funds over fixed deposit

Among other ways to make extra money, this one involves some homework. Just do the high school math to understand why to invest in debt funds over fixed deposit. I will explain with a simple example.

Why debt funds perform better?

Let’s say you invest 10 lacs in fixed deposit and your highest tax bracket is at 20% because your income from salary or other sources is around 10 lacs. The interest on 10 lacs @ 8% is 80,000 Rs, but you will only get 64,000 Rs. in hand (80,000 – 20% tax). However, if you invest the same amount in debt mutual funds like Axis banking and PSU fund which invests in government-backed PSU (more secure than other corporate debt funds), you will earn about 8% return after indexation for inflation provided you withdraw after 3 years. This means, with inflation of about 5%, you will have to pay tax on reminder of return 8% – 5% i.e. 3%. Therefore, you will pay tax on only 30,000 Rs and not 80,000 Rs. Meaning you get 74,000 (80,000 – 20% of 30,000) in hands vs. 64,000 in case of bank FD.

How debt funds gets better over fixed deposit over long run?

You will see the beauty when you consider 10 years of investment of 10 lacs @8% in debt fund which earns you 1 lac Rs. more in hand vs. 8% FD investment for the same time. If you still need more understanding of why debt funds are better than FD, check out this article here.

Revisit your saving account for extra interest

The purpose of saving account is to keep the money for regular and unplanned expenses. It is recommended to keep about current month expenses plus your 2 months of basic expenses (without which you cannot live e.g. food, rent) into saving account and 4 months basic expenses in fixed deposit for emergency purposes.

Example

If your basic monthly expense is 1 lac Rs, you should keep about 2 lacs in saving account in addition to your current month expense requirements and rest 4 lacs in four separate fixed deposits. The 2 lacs in the savings account earns interest of about 4% vs. FD interest of 7%. By creating auto sweep in, you can instruct the bank to automatically invest this excess 2 lacs into FD and earn 3% more interest. Isn’t it simple? Banks like HDFC offer this as a one-click option under the accounts tab, check here. You would end up earning about 5000 Rs annually with this trick instead of keeping all money idle in your savings account. With compounding effect, over average adult life of 50 years, you would end up generating 2.5 lacs ????

Open online account to earn 8% interest rate

The fifth way to make extra money is very simple, Google for high interest saving account. We wonder where to keep 4 months of basic expenses? I usually split it across 4 banks FD where the interest rate is better. With the government offering insurance for 1 lac rs. per customer per bank as of Feb 2020 with expected to increase to 5 lacs per bank per customer, it makes sense to take choose small banks that offer better rates and limit your investment to the government insurance limit. This way you get great rates with no risk with a government guarantee.

Which banks you may consider?

I split my 6 lacs of expenses across 3 banks DCB Bank and AU Small Finance Bank and Lakshmi Vilas Bank and enjoy about 1% more which adds 6000 Rs annually in my pocket. Over the entire life of 50 years, it would be 3 lacs. The power of compounding and time! Remember to watch out for best interest blogs so that you can revisit your banks and saving accounts when better opportunities come up.

Summary

To summarize, these 5 ways to make extra money has put about 30,000 Rs in my pocket and now money work for me. Over a lifetime, it would be 15 lacs. Surprising, isn’t it? Go ahead and take these crucial steps and make money work for you. If you want more ways to make extra money and achieve financial freedom, check out this blog.