Last Updated on December 18, 2021 at 10:42 pm
Here is a set of simple steps that might help young earners minimise their taxes and take control of their financial life.
This post is based on a request from one of my students who started out on an IT job some months ago.
Tax planning – a set of actions designed to save tax – is how most young earners get interested personal finance.
Unfortunately, most of them screw up their financial life right at the start, by buying utterly unsuitable products all in the name of ‘tax saving investments’!
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Subscribe for money management solutions via email! (Link takes you to our email sign-up form) Join 32,000+ readers in our community.
👉 New Tool Alert! NaviPlan: A Privacy-Focused Multi-asset Tracker and Goal Planner 👈
To plan, one must recognise that taxes saving instruments share some common traits:
Instruments that offer ‘pure’ insurance for a fee
- Term life insurance on a contract that runs for a few years with yearly renewals
- Health insurance typically on yearly contract and renewals
Instruments that offer a ‘return’
- They have a lock-in period of a few years – 3 for ELSS mutual funds, 15 in the case of PPF and few years to decades in the case of insurance plans (ULIP, money-back, endowments, pension plan, child plan etc.).
- Most of them require you to pay for a certain number of years- 15 in the case of PPF and few years to decades in the case of insurance plans.
Guidelines
(A) Choose pure insurance products first!
(B) Among instruments that offer a ‘return’, choose one with minimum lock-period with no obligation to make future payments.
Tax planning Cheat sheet
The following is independent of tax section (80C/80D) sub-limits!
Section 80 C:
1. Account for EPF contributions – the obvious and automatic choice.
2. Buy pure term life insurance – Guideline (A)
Surprised! Don’t be. Get term insurance for as high an amount as possible for about 25-30 years. Online policies are quite cheap irrespective of the insurer for young earners.
So get as high a cover as they would offer and name your parents as nominees (even if they are financially independent!). Later you can change it to your spouse or kids.
Here are some things to do after you get a term plan!
3. Lump sum investment in a ELSS mutual fund – Guideline (B)
At 3 years, they offer the lowest lock- period. There is no obligation for you to invest the next financial year, provided you don’t setup a SIP (don’t!)
Get yourself an online account from an AMC and invest –a few times a year on market dips.
You can use this step-by-step guide to select a ‘good’ ELSS fund
Section 80 D
4. Individual health insurance cover for self and parents – Guideline (A)
Does not matter if your employer offers one. Just buy one for yourself and your parents for as high a cover as you can afford. Increase the sum insured each year by as much as possible.
Section 80G
5. Identify a good charity and sponsor them. Yes, you can save tax too but that is not important.
That is it! Simple steps to ensure you don’t get your financial life in a tangle.
With that behind you, you can begin to
- list your financial goals,
- tag your ELSS investments to one of your long-term goals
- minimise your expenses
- invest as much as you can in equity instruments
Carpe Diem!
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
Use our Robo-advisory Tool to create a complete financial plan! More than 3,000 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
🔥Join our community of 9000+ users! 🔥Avail massive discounts on our courses + freefincal investor circle!
Track your mutual funds and stock investments with our Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds, ETF screeners, as well as momentum and low-volatility stock screeners.
You can follow our articles on Google News
We have over 1,000 videos on YouTube!
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalised investment advice. We can write a detailed article without mentioning your name if you have a generic question.
About The Author
Dr M. Pattabiraman (PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over 14 years of experience publishing news analysis, research and financial product development.
Connect with him via Twitter(X) LinkedIn YouTube
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Increase your income by getting people to pay for your skills! More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!
Our book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting a side income via content writing. It is available at a 50% discount for Rs. 500 only!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
Your Ultimate Guide to Travel
