As you well know, time is money, especially when you have very little of it. Thus, you should make the most of what you have here and now. Generally, when you talk about not knowing how much time you have, you think of insurance. The fact, however, is it has more to do with efficiently planning your finances. This planning includes expenses, savings, investments, and yes, insurance as well.
The most important part of your financial planning is tax planning. Paying taxes is the immediate and direct consequence of earning money. Thus, the first thing you should learn is about the taxes you have to pay and how you may save on them.
Probably, when you started your first job, you were least concerned about taxes and more excited about the ways you could spend your earnings on fulfilling your desires. Nevertheless, as you grew older and more mature, you realised the importance of saving and planning and today when you are in your 30s, you have a completely different viewpoint than what you had in your 20s.
Today, you know that the amount of taxes you save is the seed capital for one or more of your financial goals. Thus, before you start learning about the best tax-saving options, here are a few basic tasks that you need to do.
- Prioritise your expenses
You need to prioritise your expenses so as to ensure that you concentrate on and account for all the necessities first. These may include groceries, utility bills, monthly installments, children’s education, so on and so forth.
- Lower your interest expenses
If you already have an ongoing home loan, car loan, and a personal loan, then you should concentrate on paying up the one that charges the highest interest rate. Also, ensure that these loans are at the most economical rates and if necessary, switch to an economical lender. If you are looking to avail of a new loan, then you should focus on taking the least amount of loan possible and from the most economical lender.
- Opt for an economical health insurance policy
The most important of insurances is health insurance and depending on the health history, you should maintain sufficient coverages for all family members. Do a research and buy the most economical health insurance that fulfills your requirements. This will reduce the burden on your liquidity requirements and prevent financial difficulties in case of an illness.
- Choose a term insurance policy
Having taken care of all the necessities, you need to concentrate on savings and investments for the future. Life insurance is essential to financially support the family in case of an untimely demise of the bread earner. Thus, it is advisable to go for term insurance that provides higher coverage at lower costs.
- Avail of income tax exemptions
Even if your target is to spend from what is left after saving, tax planning is important. The amount of tax you must pay is directly related to your income. You may benefit from income tax exemptions that the government allows and reduce your tax liability. You may use such funds for saving or spend it on necessities.
- Focus on investments
Having accounted for necessities, insurances, and income tax, you now need to think about savings and investments for your future goals. You must fully utilise the income tax exemptions by investing in the best tax-saving options available. Some of the available options include equity-linked saving schemes (ELSS), public provident fund (PPF), tax-saving fixed deposits (FDs), and others. Fixed income instruments like PPF and FDs deliver lower, but guaranteed returns. However, these are not beneficial to build wealth over the long-term. ELSS mutual funds offer the potential for higher returns because of its exposure to equity and related products.
- Diversify and monitor
The critical part of an investment portfolio is diversification that minimises risk and maximises earnings. With the ever-changing market conditions, the risk-return ratio of your portfolio will keep changing and thus, you will have to periodically monitor and make necessary portfolio changes to ensure that it is performing as expected, if not better.
ELSS mutual funds offer the flexibility to invest on the last day of the financial year and still avail of tax exemptions. However, it is advisable that you plan in advance and use technologically advanced tools such as ARQ to access available mutual fund investment options and choose the right one that aptly fulfills your financial goals.
Whether looking for tax-saving options or simply seeking wealth-accumulating options, you need to carry out an in-depth research and gain a clear understanding of your own finances and budgeting. The proprietary ARQ investment engine launched by Angel Wealth helps you with this detailed analysis and provides recommendations that are free of human bias.