Most people pay their bills, spend on the necessities through the month, and save whatever amount of money is left by the end of the month. This pattern is not surprising when it comes to the young generation who have recently begun working. Beginning your career and gaining financial independence is exciting as there are plenty of aspirations that the younger generation hold to be fulfilled with money.
It is known commonly that the sooner you begin saving and making the right investments, the brighter your future will turn out to be. The importance and benefits of saving can’t be emphasized enough as building this as a discipline will turn out to be fruitful for long term success. However, it would help if you also made smart financial decisions to make substantial tax savings; here’s how to plan your finances not to let taxes get the better of you:
Get Informed About Tax Savings
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Most people who have just started on their journey into forming a career fall into the bracket of earning up to 5 lakhs annually. Falling under this bracket earnings mean that your income is not taxable. However, for those individuals that have an annual income of Rs 6 to 7 lakh must priorities tax planning to ensure that the net taxable income falls below the threshold of 5 lakhs.
According to the experts, the motive of an investment should not only be tax savings; you must make sure that your investment portfolio aligns with your life goals and you have enough liquidity to take care of any immediate needs. Before choosing tax-saving investment; however, consider factors such as your risk tolerance, age, monthly income, and premium payment capability so that you can maximize returns on your investments through long-term interest accrual and tax-saving benefits.
Have a Fund to Splurge
When you begin earning, it is crucial to enjoy the joys it brings and splurge now and then. As you are young and have fewer responsibilities on your shoulders, it is okay to have fun occasionally. When it comes to budgeting, you must pay your bills off, saved emergency money first, and save 8 to 10% on guiltless spending.
You can go ahead and buy those shoes or dress you’ve been eyeing with your ‘blow away’ money. However, you mustn’t over splurge and stay within budget when it comes to fulfilling your desires.
Prepare for Emergencies
It is advised that setting up an emergency fund should be your utmost priority as unexpected expenses keep appearing, and the availability of funds can be a problem due to the fast-paced lifestyle. An emergency fund will have your back in case of medical expenses, vehicle breakdown, gadget repair and more without having to borrow.
Also, as the younger generation is becoming more and more experimental by starting their businesses and start-ups, an emergency fund will ensure that you can leap. This emergency fund should be an untouched collection of funds in the last 3-6 months.
Be Mindful of Your Spending
Being wise about where and how you spend your money is the first step towards formulating a budget. It is easy to calculate your expenditure on rent, conveyance, groceries, bills, and utilities. However, most of the times, your miscellaneous expenditure can go unnoticed, which calculate to a large sum of your expenses.
According to experts, you should track your spending habits over a couple of months by tracking every transaction. There are various old school ways to this efficiently through maintaining a notebook or excel sheet; you can take digital aid with multiple apps that have been developed to track your expenditures.
Save Instead of Borrowing
Apart from minimal spending, there will be more significant expenses as well; such as buying a gadget or a vacation. More considerable expenses are funded preferably by the younger generation borrowing. However, one must keep in mind that going overboard with borrowing is a recipe for disaster as it could lead to a debt trap.
Even credit card debts, if left unpaid for long, can result in increasing your financial liability manifold. If you do have a credit card, make sure that you pay off the bill entirely otherwise the credit card debt will incur additional interest, in turn, disrupting your monthly budget.