Check out professional advice on how to master your finances and overcome financial anxiety!

Financial stress may develop as a result of poor investment choices or unforeseen economic or personal occurrences. There isn’t much one can do about the latter, but having more free cash may let one ride the wave with little to no concern.

Investments are made with the intention that they will be a friend when you need one. A paid worker may have made minor investments throughout the course of his career in mutual fund SIPs or gold accumulation. The tax implications of selling equities should not dissuade investors from doing so when the financial crisis strikes. Lenders now routinely scare away such investors by highlighting the increased tax consequences of withdrawing such assets in comparison to borrowing from them based only on the investment. Gains from the sale of gold or mutual fund units are, of course, taxed.

However, there is no tax obligation if the investment is used as collateral for a loan from the lender. However, investors often refuse to see behind the smoke screen. They are too stressed to consider beyond the immediate benefit because of their current situation. A person with an educated mind would understand that the investments would be subject to taxes, either now or when they are sold in 10 years. Why should you be saddled with needless interest liabilities when you could pay the taxes and spend the money instead.

The investor incurs a dead cost in the form of interest on the borrowed funds; it does not increase the value of the investment or provide him with any comfort. In actuality, the load of the interest overwhelms the lender, causing further stress.

Making the incorrect asset class choice for an investment or opting not to invest when there are possibilities are both examples of poor investment choices. If one adheres to the rule of not putting good money behind bad money, financial hardship brought on by poor investments is often short lived.

Many times, getting out of a poor investment choice also results in a tiny tax advantage. If a novice investor decides to sell options and registers a loss while having little knowledge of stock options, they would realize the loss and hunt for chances to set the losses off against other taxable income. Losses may qualify as assets for tax purposes if they may be carried forward and offset against future taxable income for up to eight years, depending on the kind of loss.

The potential for short-term tax advantages from some assets should not be used to guide investment choices.

For instance, a paid worker with a limited time horizon for investing should not consider investing in a public provident fund only to obtain a tax credit against salary income. In these circumstances, a tax-saving fixed deposit with a 5-year lock-in period (as opposed to a 15-year lock-in period for public provident fund) would be preferable. People who are more willing to take on risk may even pick a tax-saving mutual fund with a three-year lock-in.

Although there are market-related hazards, the authorities have included enough protections to guarantee that the risk of investing in these tax-saving mutual funds is kept to a minimum.

Tax should never be the only criterion for financial planning, even while tax expense should be taken into account when evaluating return on investment. Because insurance products are free from taxes, seasoned financial advisers often advise against using them as investment vehicles. The space that previously open for such investment and tax planning has been drastically reduced thanks to recent changes in tax regulations.