Align your strategy with one of best minds in the world of investing: Warren Buffett's mentor Benjamin Graham - Let your Window remain Open

On a relaxing holiday away from the daily routine, we were exploring one of the scenic countries in western Europe. At one time, a strong transport network of canals and waterways had made it one of the most advanced trading countries in the world. Today, we were cruising through a section of these historic waterways as part of a guided canal tour.

While enjoying the boat ride with the cold wind against my face, I was trying to focus on what the guide was explaining about the rich history and culture. My attention was drawn to many of the old buildings on both sides of the canal. While all the buildings had a door, most of the windows were walled up. The window frame was visible but it was covered with brick or stone.

The guide explained that back in the days, there was a tax levied based on your perceived income and having more number of open windows meant you had a very big house and hence be made to pay more taxes. So, if you simply walled up your windows, you could save on some tax each year!! Just call the mason and wall up your window! He made it sound so simple but I could not come to terms as to how one could live in such a house if your window had to be walled up! I simply could not focus on the rest of my boat ride – it was so scenic, but I kept on thinking about how the people living there back in the day, never enjoyed this beautiful scene and had to live in a house with windows walled up – just to save some tax outgoings each year.

So, if you simply walled up your windows, you could save on some tax each year!! Just call the mason and wall up your window!

Back in the world of finance, I had to submit my annual tax declaration to the HR Team. I was feeling relieved thinking how today we have a much simpler ways to axe our tax outgoings each year. One such avenue is to invest up to Rs 1.50 lakh in a tax saving mutual fund. I don’t have to call a mason with some bricks and cement – there are many convenient ways. What works the best for me is the facility whereby directly from our salary, each month an amount of Rs 12,500 (making it Rs 1.50 lakh for the year) gets automatically channelised by my company payroll processing team into the mutual fund scheme.

This facility is commonly known as SDP (systematic deduction through payroll). Since such amounts do not come into my bank account at all, there is no visibility of the same and hence no potential to use up the amounts. And my window is open the whole year long. Not just the window of my home, but I meant my investment window, since the amounts are invested in small monthly SIPs from my salary each month.

It is also the time of the year when I go for a routine annual health check up. While talking to my family doctor about my travels, I casually asked her about potential health hazards of living in low ventilated homes and I got a long list of alarming health issues. After understanding the experience of the difficult processes and pains people used to take to save taxes even in history, my doctor also decided to start a SIP into a tax saving mutual fund. A simple auto debit instruction and her work was done. Being from a medical background, till now she had not paid much attention to such tax saving solutions.

After understanding the experience of the difficult processes and pains people used to take to save taxes even in history, my doctor also decided to start a SIP into a tax saving mutual fund. A simple auto debit instruction and her work was done. Being from a medical background, till now she had not paid much attention to such tax saving solutions.

While one would tend to feel upset thinking how people living without proper ventilation would be getting sick and rushing to visit a doctor, I am feeling happy that in the new year, my doctor has got motivated to start a SIP to enable her to reduce her taxes in a simple manner.

This ensures two basic principles of personal finance:

1. ensuring a disciplined approach of investing systematically each month;
2. making investments at different entry points without thinking about market timing or short-term volatility.

In parallel, slowly and steadily, these invisible amounts get accumulated towards creating her wealth each month, while ensuring she reduces her tax outgoings.

To conclude:

Let your window be open – throughout the year.

Whether salary or professional income, make no rush during the last weeks of March for your tax saving investments.

Doing a systematic investment throughout the year also aligns your strategy with one of best minds in the world of investing, Warren Buffett’s mentor Benjamin Graham.

Graham in his epic book The Intelligent Investor, had popularized a simple strategy of “Dollar Cost Averaging” which suggests a formula investing of a set amount in the same investment at fixed intervals over time, which leads to buying more when prices are low and vice versa.

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Source: The above article I wrote was first published in MoneyGuru: https://www.moneyguruindia.com/mutual-fund/2019/02/06/an-easy-way-to-save-tax-a-window-to-invest-systematically-through-the-year/

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