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How Is a Financial Plan Different from A Tax-Saving Plan?

Sep 16, 2019 | 5 months ago | Read Time: 3 minutes | By iKnowledge Team
Tax Saving

What is financial planning?

Is it only about choosing investments that help you save taxes? No! Tax-saving is only a smart part of a broad category called financial planning. There is more to a financial plan than what meets the eye.  For a financial plan to be successful, it should have a proper investment plan that saves taxes.

Financial Plan- Meaning

A financial plan 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 life. You then try to choose savings and investment options accordingly so that you can meet your long-term and short-term financial goals at various stages in your lives. In a financial plan, you must account for contingencies. Life is unpredictable; therefore, you need to brace yourselves to meet unplanned financial emergencies, any time in your lives. Setting aside a fixed amount every month towards a contingency fund is your first step towards meeting these emergencies.

What is Tax-saving plan?

In a tax-saving plan, as the name suggests, the only goal is to save taxes and to choose investments accordingly. You can choose investments based on your financial goals. If you want to plan for retirement, there are many annuities plan that you can choose from. All of them provide tax benefits as well. If your goal is to fund for the higher education of your kids, you have many term insurance plans that not only pay out a lump sum amount when your kid is about to begin his/her higher studies but also provide insurance cover so that your kid is protected, even in your absence.

When you are choosing investment options to save taxes, it is best to invest in long-term ULIPs. These plans invest in a diverse range of funds (equity, debt or a mix of both) based on your risk appetite. The market returns of these funds are quite high, and they also come with a lot of tax benefits. They come with the dual benefit of investment and insurance.

Aegon Life has one such plan that gives you the option to choose from 6 diverse funds for investment. You can switch your portfolio whenever you want and opt for phased pay-outs under this policy. This policy comes with a life cover as well, which assures financial protection to your near & dear ones, even in your absence.

Financial plan vs. tax-saving plans

It is not right to compare the two because they are closely related to each other. A financial plan is deemed complete only when it has the right investment plans in place. These investment plans should be carefully chosen so that it helps you meet the financial goals that you have at every stage of your lives. So, when you are doing an investment plan, you are ideally budgeting for every big moment in your life, calculating the corpus that you need for the same and choosing the investments accordingly. So, you are planning your finances this way, aren’t you?

As you can see, the only difference between both these categories is that a financial plan is a broader category that talks about planning for finances throughout your life, whereas an investment plan talks about planning for finances so that you can choose the right options and save taxes.

Irrespective of the plan you choose, few things remain constant. They are:

  • Having well-structured short-term and long-term financial goals at every stage of your lives
  • Starting to save as early as you can, so that it gives you a long window to stay invested and reap good returns
  • Cutting down unnecessary expenses and saving for a better future
  • Putting aside at least 10 to 15% of savings every month towards financial or investment plans, to be used at a time when it is needed the most
  • Talking to a professional in case of any queries or ambiguity

If you haven’t drafted your financial plans already, what are you waiting for? Get into some serious number-crunching activity right away and see if you are on the right progress of accumulating reasonable wealth so that you can continue with the same lifestyle as before, even after your monthly salary stops hitting your bank account. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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