Why worry about saving money while life is all about enjoying every moment? This is what every 20-something thinks!
Who wants to be bothered about savings when you could be swiping your Credit Card to kingdom come, having a gala time with your friends, discovering new places, eating at fancy restaurants, or even dancing the night away at some posh club?
Wrong! Although we agree that you need to enjoy your life to the fullest while in your 20s, it is also important to start saving money at the earliest for a bright financial future.
Additional Reading: Financial Habits Of 20-Somethings: The Good And The Bad
We get that you don’t want to open a Fixed Deposit account or invest in Mutual Funds at the moment. But, how about saving on the yearly income tax that you have to pay? Sounds like a good idea, right?
Do you know that you can save up to Rs. 1.5 lakh every year if you invest in tax-saving avenues such as PPF, ELSS or NPS? It is wise to take advantage of such avenues and save on the taxes you pay yearly.
Here are a few tips for all you 20-somethings on how you should approach tax saving:
Don’t put off tax planning until the last moment. This is a common mistake that most of us make today. We are so lazy that we put off planning our tax-saving investments until the HR department starts breathing down our necks for investment proofs.
We then start panicking and force ourselves to make hasty decisions. This often results in bad investments.
If you want to avoid such hasty decisions, we recommend that you start making tax-saving investments in the first quarter of the financial year. Only by doing so will you be able to make the right decisions when it comes to investing.
Additional Reading: A Look At Investments That Can Help You Save Tax
Invest in ELSS funds, please! You’re young and you have time on your side. Why don’t you take a little risk and invest in tax-saving equity funds? Besides, ELSS funds are risky only when you invest for a short term. In the case of long-term investments, the risks are reduced and you’ll earn higher returns as well.
Also, unlike other investment avenues like PPF and FDs, ELSS funds can fetch you inflation-beating returns over the long term.
Additional Reading: The Layman’s Guide To Investing In ELSS
Diversify your investment portfolio. This applies to every stage in life. You need to diversify your portfolio to save on taxes as well as to build your financial future.
Ideally, when you’re in your 20s, you must invest more in ELSS funds as compared to the other avenues. However, in order to balance the risks involved with equity investments, you’ll need to invest in debt instruments.
Since we’re concerned about saving taxes while building wealth at the same time, it makes sense for you to diversify your portfolio across debt-oriented avenues such as PPF and tax-saving fixed deposits, and ELSS funds.
Additional Reading: Diversify Your Portfolio With Style
These tax-saving options are not just meant for saving tax. Sure! We’re helping you save on tax, but don’t restrict your investments keeping only one goal in mind.
If you plan your investments diligently, you could accumulate a substantial amount of wealth in a fairly short time. The point, however, is that you could use these tax-saving instruments to fulfil your financial goals, such as buying a new house or a new car, going on a world tour or even planning for your retirement.
Here’s a quick tip – plan your financial goals and align your investments accordingly.
Additional Reading: Align Your Needs With Your Financial Goals
Don’t forget to avail tax deductions for all the exempt expenses you make. By tax-exempt expenses, we’re referring to Life Insurance premium, Health Insurance premium, Loan repayments, etc.
You can avail tax deductions on these expenses under Section 80C. Remember, these are payments that you’ve already made, so not availing tax deductions on these expenses is rather foolish.
Additional Reading: How Section 80C helps you save tax
The bottomline – Don’t commit financial hara-kiri by paying more than the minimum income tax due. You could start by following the tips mentioned above religiously. Your 20s lay the foundation for your future, so it is wise to start off on the right foot.