Investing can’t be for saving taxes alone
Insurance companies got over 40% of the new business premium income in the last three months of 2015-16, a reflection of the rush for tax savings towards the end of a financial year.
Investing in haste to beat the tax saving deadline is the worst form of financial management. Even meeting the deadline will never be on an intelligent investor’s mind. Investing cannot and should not be about deadlines. Investment decisions have to be based on intelligent choices made throughout the year, such as:
Investing Should Be Linked to a Financial Plan
- Investing primarily has to have a link to an individual’s financial plan with future savings in mind.
- Investing must follow a plan that spans all the twelve months of a year.
- Investing should not be left for the last couple of months of a financial year. By leaving investment decisions to a window of the last couple of months, you may have already lost or missed out on more rewarding investment opportunities.
- Do not invest with the aim of saving on taxes to the maximum possible. This is a very unhealthy way of managing one’s finances as it does not factor in features of the plan. You may even end up overpaying for features you don’t need.
Factoring a Strategic View of Finances
An intelligent investor follows a regimen of regular savings and investments in a mix of financial instruments for saving tax as well as for future financial needs. Individuals not adhering to a disciplined method, end up spending the money they have and run helter-skelter to arrange finances for making tax saving investments towards the end of the year.
Being an intelligent investor means taking a strategic view of one’s:
- Current finances
- Risk absorption capacity
- Future financial needs
The mix and proportion of financial instruments chosen for investments will vary accordingly.
Protection From Unforeseen Expenses
A financial plan is not complete with just planning investments and tax savings. The need for protecting your finances from unforeseen expenses due to ill-health or from damage to your dream home or the car that you care for so much, should not be lost sight of.
Having an appropriate level of health insurance cover for you and your spouse and children is critical. Health insurance cover for your parents is required too. It’s not dispensable. Unanticipated healthcare expenses have the potential of draining your financial resources. Protect your financial plan with an appropriate health insurance plan, super top ups and add-ons as required.
Similarly, property insurance and own damage insurance covers are no less important. The incidence of damage to your home might be very, very low, but the damage costs often run in lakhs. Insurance cover protecting your property and expensive belongings or a car will come in financially handy in the case of an unfortunate event.
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