The importance of financial planning cannot be overstated enough. Financial planning involves taking decisions on the investments to be made throughout the year which can help you best meet your financial goals, both in the short-term and long-term.
An important component of financial planning is tax-planning. This usually involves making investments that align with your current financial goals and future financial needs as well as help minimize your tax outgo.
As you would have heard from many a tax expert, it is best to start financial planning as early as possible. It is important that you start your tax-planning in April 2o20, at the beginning of the financial year, as opposed to March of 2021, when the deadline for submitting details of your tax-saving investments, looms. There are several ways you can start planning your finances in advance, and several things you should keep in mind to ensure the best returns.
Read on to learn more about how you can achieve effective financial planning while also garnering tax benefits by putting the process in motion from April onwards.
- Helps You Make the Right Investment Decisions: While making tax-saving investments is key before the March deadline, you shouldn’t pool your savings into an investment avenue solely for the benefit of tax-savings. You must be able to derive value other than tax benefits from your investment. Planning early gives you the opportunity to sit down and take some time out to evaluate your financial goals and needs and plan your investments accordingly. Planning early helps you determine the investment that is most in line with your financial requirements and those of your loved ones. Planning your tax-saving investments a year in advance can help you derive the two-pronged benefits of tax-savings as well as high returns on your investments.
- Start Early to Ensure Higher Returns: Returns on your investments are partially dependent on the amount of time the investment is made for. If you make the investment right before the deadline of March 31st comes up, you are actually losing out on a substantial amount of money. The magic of compounding, i.e. the practice of reinvesting one’s returns, only works if you invest well in advance. So, instead, make your investment in April, at the beginning of the financial year, to ensure that you are able to capitalize on the returns you can earn on these investments. For instance, if you invest in a ULIP in April or even at intervals throughout the year, it will remain invested in the market for a lengthier amount of time, compounding will work its magic and you are ensured higher returns.
- Ensure Financial Protection for your Family:A crucial component, perhaps the most crucial component of financial planning is protecting the needs of your loved ones. While maximizing your current take-home pay is essential, financially protecting your the future of your family is equally essential. Luckily, you can do both with the help of life insurance. Life insurance provides deductions of up to Rs. 1.5 lakhs on the premiums paid towards your insurance policy, while also financially protecting your family against any unfortunate circumstances. To derive the most benefits, you should opt for the life insurance policy that offers the most comprehensive coverage, while also providing a significant amount of tax benefits. When you decide to buy insurance in March, it does not leave you with much time to evaluate your life insurance options and you may end up picking the first option at your disposal. Compromising on insurance coverage in lieu of tax benefits is a grave error. Alternatively, if you start the planning process early on, you can evaluate and compare all your options and pick the insurance cover that offers the most benefits.
- You Can Use Bonus or Salary Hikes Effectively: Many companies issue salary hikes and appraisals around April. As a result, employees can enjoy increased cash flow in that month. Use these resources judiciously and make investments that will ensure your wealth grows substantially. You can use the bonus amount to start a long-term tax-saving investment that will ensure high returns.
Conclusion: Tax-planning is something that has an impact throughout your life and not just in the immediate months of March and April. It is important to spend enough time evaluating your options before making any final investment decisions. Starting early is, thus, crucial.
An effective way of saving tax as well as ensuring financial protection for your family is opting for the iSelect Smart360 Term Plan, from Canara HSBC Oriental Bank of Commerce. With the iSelect Smart360 Term Plan, you can derive the maximum amount of benefits for you and your family. While deductions on premiums are available under Section 80C, the payouts received under the policy are also tax exempted under Section 10(10D) of the Income Tax Act. On the policy end, you can avail of a high sum assured at discounted rates and customize the policy, in terms of premium payments and type of coverage, as per your needs and goals.