What Will You Choose? Tax Saving Or Achieving Financial Goals?
Setting short-term, mid-term, and long-term financial goals is an important step toward becoming financially secure. If you aren’t working toward anything specific, you’re likely to spend more than you should. No matter how cautious a person is, facing an inadvertent crisis becomes difficult when there is no prior preparation. A financial goal is something that you create after considering your current income, savings, expenses, future earnings, insurance, if any, financial goals, and a vision for your future. You can compare different types of loans from MyloanCare. Out of many loans, house loan is one which is vital. Check out the Myloancare home loan guide today. Also compare other loans from different banks.
Making financial goals for a certain period of time gives you a portal to work through things that could happen any time, sooner or later, so that you can do your best to prepare for them. This should be an ongoing process so you can shape your life and both short-term and long-term goals to fight in the face of the changes that will inevitably come.
Goal-setting starts with identifying various short to long-term goals. A goal that can be fulfilled within 12 months or less is termed a short-term goal. A goal that requires a larger time frame is known as a long-term goal. So basically, the first step of financial planning is always setting a certain timeframe and maintaining a monetary barrier within that time constraint.
One of the best parts of setting a financial goal is the availability of a constant amount of money that can come in handy anytime, without degrading the individual’s quality of living. There should be clarity about the goals that you wish to achieve. It also helps in the proper linking of the goal to an investment. An attempt to meet a medium-term or short-term goal by linking it to a long-term arrangement may not produce the result as seamlessly as expected.
Advantages of financial goals are plenty like-
- Close monitoring prevents irrational and unnecessary expenditure.
- Setting goals make appropriate utilisation of the save dup resource.
- A whole new perspective of money-saving is provided by financial goals. It gives a firm platform towards the approach of ‘Income minus saving equals to expenses’ instead of the common theory of ‘Income minus expenses equal to saving.’
In a tax-saving plan, as the name suggests, the only goal is to save taxes and to choose investments accordingly. With competition growing exponentially in every sector, tax-saving has become a pivotal weapon in the financing world. The most popular way of tax saving is the one provided by Section 80C of the Income Tax Act 1961.
Section 80C of the Income Tax Act, 1961 gave tax deduction a whole new edge. Section 80 offers a particular combination of activities that taxpayers can utilise to decrease their taxable income. By investing the income of a consumer in the mentioned activities, the person can claim a tax deduction of up to Rs. 1.5 lakh when they file their respective Income Tax at the end of a financial year. The amount will be deducted from the total gross income of the individual to arrive at the taxable income. By investing in these, the applicant is bound to get the dual benefit of tax exemption and a much higher rate of returns.
A large part constituting 5% to 10% of a person’s income is subtracted from the total for taxation tax-saving goals like this help save a certain amount of money from the portion that is bound to get deducted. Like Financial goals, Tax-saving policies also offer different investments and amenities for different types of needs.
However, there are downsides as well. Several policies are there which have longer lock-in periods and hence fails to provide a fruitful return.
Now that we have the advantages of both the policies, let’s do a comparative study. How can we lay the background? By not comparing them. Financial goals and tax-saving goals go absolutely hand-in-hand. As good as these two policies are on their own- the combined outcome has a much more profitable and sustainable effect on the monetary goals of an individual. The only minor point of difference between both these categories is that a financial plan is a broader category that allows you to plan for your finances throughout your life, whereas an investment plan talks about planning for finances so that you can choose the right options and save taxes at the same time. When you’re chalking out a budget for the return obtained from tax-saving investments, part of it contributes to financial goals as well.
So, in conclusion, start saving early and make it a monthly habit. Put away 5%-10% of your earnings every month for any future need. At the same, work on the tax-saving investments that might result in higher returns. Make sure your future works seamlessly, and there never arises a time when there is an utter and sudden shortage of money.