Grow your wealth while saving taxes

At the end of every year, do you find yourself making multiple last minute tax investments?

Are you asking if I have tried to look into why this pattern continues?

Tax planning is one of the most important aspects of finance. The negatives associated with it are inevitable, but they should not be seen as a deterrent. If you agree with that, it’s worth re-evaluating your attitude and trying to see it as a tool for creating wealth.

This article offers 5 tips to help you save the maximal amount of money while also ensuring that you earn more money.

The first thing you should do is increase your knowledge of personal finance taxation.

Sadly, the schools don’t teach us money management. However, you can use a variety of tools to learn how to best manage your finances. All you have to do is educate yourself and those skills will stick with you indefinitely.

One way to start benefiting from investing is to invest in yourself, by making sure you continue learning about personal finance and taxes. Stay updated on the latest tax changes so you can make a well-informed decision at tax time.

This will help in the following ways:

1. Helps you assess various financial products
2. you can proactively review the changes occurring in the financial & tax landscape and make any necessary adjustments to your investment strategy.
3. saves your business from costly tax mistakes and other penalties

Tip 2: Tax Planning

In general, we see tax planning as a separate compliance activity for most people and don’t consider it part of our financial planning.

What this means is that the money you put into taxes over the years simply no longer can cover your financial needs.

As a result, rash decisions, risky investments, and pre-mature withdrawals can lead to self-imposed tax implications penalties.

To avoid this, you need to do the following:

1. The first step is to figure out your financial goals and the type of risk you’re willing to take. Before you start trading, it’s important that you understand markets and how they work.
2. Investors should also think about risk, lock-in and liquidity for each possible investment product before selecting the best one.
3. For the chosen financial products, make a monthly deposit and be consistent with it – don’t wait until the last minute.

Tip 3: Choose the right tax investment options in order to help create long-term wealth.

Tax savings are an important aspect of personal finance. With this in mind, you may want to explore different avenues that can help save you money. Legitimate investment vehicles like LIC policies, NSC, and PPF should not be overlooked as they provide higher returns.

It’s hard to fully understand financial advice from elders, especially when they’re not in the same profession as you. They may have lived during times when there was barely enough to feed themselves or their family.

As the world has become more technologically advanced, investing has become much more mainstream. However, competition for returns is very high in such a market that was already inefficient. So what’s the solution?

Consider investing in equity-based tax saving avenues which have been more profitable over the long term than other asset classes. Equities also tend to rise because they are less sensitive to inflation than bonds.

The best way to invest in equity & get tax benefits is to invest in equity-linked savings schemes (also known as ELSS).

Another way is to invest in the National Pension Scheme (NPS). By the way, NPS investment also qualifies for additional tax deduction over & above the Section 80C limit.

Tip 4: Tag your investments to your financial goals.

That’s why when you invest in a tax sheltered fund, make sure you know the exact purpose for doing so.

For example, you can earmark investment in a child’s education by investing in ABC mutual fund’s ELSS scheme and save for retirement by investing in XYZ mutual fund’s ELSS scheme.

Now that you know which investments fit into which goal, you will know to avoid the above investments when withdrawing money for your next vacation or buying an iPhone.

Why not just withdraw from those mutual funds and invest in something else then?

Tip 5: Re-evaluate your tax-savings investments periodically:

In general, people think of tax-saving investments as a necessary evil required to satisfy the I.R.S. and exit their investment. They often look at one tax deduction as serving “investment’s purposes”.

Unfortunately, this approach is not correct because of the following reasons.

1. It’s worth noting that investment performance can fluctuate, meaning gains may be lost.
2. Financial goals tend to change with time, will you be able to achieve them?
3. The new tax changes reduce the incentives for investment from a tax perspective (the best example of this is the recent budget changes that have been made to taxes for ULIPs and EPFs).

If you keep the same investments, they won’t help you achieve your wealth goals. For this reason, it’s important to review your financial plan and make changes every year in order to keep up with the latest regulations.