For representational purpose
As the financial year ends, you are most likely fretting over your taxes. Come April, a new set of tax rules apply. The Budget 2023-24 provides relief under the new tax regime to all. It will be the default tax system. You must opt for the old tax regime of exemptions each year.
The last-minute rush to meet tax savings obligations is unnecessary. You need to get your financial house in order with the help of technology. There is much less paperwork involved today than ever before.
Put worries aside
You are constantly worried about your finances. You have long-term and short-term financial goals. Towards the end of the financial year, you are concerned about your rising tax bills. If your income rises, taxes will rise. There is a time in your career you need to come to terms with that. There is no escape from taxes if you live in India, as the government has made it clear that India is not a tax haven like Mauritius or Cayman Island. It is not a place where anyone with money can escape taxation.
Even if you do not pay direct tax, you pay goods and services or indirect taxes. The best way out would be to focus on knowledge and financial planning. Getting a competent financial advisor should help with managing your investments and taxes. You must clearly understand the difference between ‘tax avoidance’ and ‘tax evasion’.
Tax avoidance allows you to find legitimate ways in the tax rules to minimize the impact of the tax. For the salaried, deductions and exemptions are clear. Tax avoidance is possible for professionals and small businesses through proper income and expenditure management.
Focus on expenditure
In an era of high inflation and rising interest rates, you may want to hold back on non-essential expenditures. You can save money while shopping in bulk for household items. There is a constant barrage of messages from shopping establishments that are online or offline, your bank and others enticing you with offers. You must curb the urge to spend on every other offer that comes your way.
You may want to decide on a monthly budget for essential and non-essential and find deals that fit into it. By determining your spending days in advance, you can automatically put out unnecessary expenses in commuting and eating out. Tight control over your spending should help you balance your monthly budget and create a surplus for investing. That step-up systematic investment plan you have been considering adding to your investments could emerge from your expenses.
Make your money work
While you control your urges to spend in an inflationary era, that does not mean you need to sacrifice your dreams. You must convert your dreams into short-term and long-term financial goals. If you do not wish to curb expenditure, you can work harder and look to increase your income. As you invest regularly, you could make your money work for you. For example, if you invested every month for ten years in a diversified equity mutual fund of large and mid-cap companies, you would have made a decent return of 15% annually. That is good enough to cover the average inflation in the economy.
After 15 or 20 years, that kind of return can create serious wealth. It is true that future returns are not guaranteed in the stock market and cannot be based on past returns. However, top companies tend to do better than the average GDP growth in an economy. As a thumb rule, they should deliver a profit growth at twice the rate of the GDP growth.
Most global institutions like the International Monetary Fund or the World Bank expect India to grow at a sustainable rate of 6-7% annually for the foreseeable future. That means top-listed companies should generate profit growth per the thumb rule. The more you manage to invest each month, the faster you can achieve your short-term and long-term financial goals. While you sweat to earn more, your money can sweat for you too.
Monthly budget
By determining your spending days in advance, you can automatically put out unnecessary expenses.Tight control over your spending should help you balance your monthly budget.
