A common myth when it comes to investing is that one needs a big fat account just to start. If you are confused about how much money to set aside for taxes if self-employed, or how much to save for income tax payments each year, the answer depends on your budget. In actuality, the process of building a solid portfolio can start with a few hundred rupees. When planning to invest a little or a lot, use these steps to budget your tax-saving investments.

  1. Note Your Net Income

The first and key step to creating one’s budget for tax-saving instruments specifically is to identify the total amount of money you have coming in. Keep in mind, however, that one can easily overestimate what one thinks their total salary is, especially if one spends a chunk of their income each month. Ensure that you subtract your deductions, such as taxes, retirement savings, and flexible spending account, and more from your tax expenditure budget.

  1. Automate Savings

The diligence of consistently setting aside a certain amount of savings each month will be very rewarding in the long run. If one did not find the organization or the willpower to go through this process on their own, technological help is available through a variety of computer applications or smartphones. The applications that make savings the least painless are those that round up one’s purchases to the nearest rupee and put aside the rest as ‘savings.’ Short of using applications, also check with your own bank about its own ways to automate transactions from non-savings accounts to those that are better suited to both savings and investing.

  1. Deal With One’s Debts

Before one begins to save money, it’s vital to analyze what it’s costing one to carry one’s debts and consider how rapidly you may discharge those. After all, high-interest credit cards can carry rates that are higher than 20% or more, some student loans have interest rates that go over 10%. If you were to carry high-interest debt, it makes a lot more sense to pay off at least some of this debt before one makes these investments. While one cannot predict the exact return on most of one’s investments, one can be certain that a retiring debt with a 20% interest rate, one year early is as good as earning a 20% return on one’s money.

  1. Track your spending

It’s very helpful to not only keep track of but also categorize your spending so you are aware of where any adjustments can be made. Doing this will help you identify what you are spending the most amount of money on and where it might be easier for you to cut back. First, start by listing all of your fixed expenses, which are regular monthly bills such as one’s montage or rent, utilities, or car payments.

While it is unlikely that you will be able to cut back on these, knowing how much of your monthly income these will take up can be helpful. The second is to list out all of your variable expenses –  those that may change from to months such as groceries, entertainment, and gas. This is also an area where you can find opportunities to cut back on spending. Bank statements and credit cards are a good place to start since they often itemize and categorize your monthly expenses.

  1. Set your Investment goals

Before you begin sifting through all of the information you have tracked, ensure you create a list of all of the financial goals you want to accomplish in both the short and long term. Your short-term investment goals should take no more than one year to achieve. Your long-term goals, such as saving for an education or one’s retirement, could take years to reach. Remember that your goals need not be set in stone, but identifying your priorities before you begin planning a budget will also help. For instance, if you knew that your short-term goal was to reduce credit card debt, then it might be a lot easier to cut your spending.

  1. Make a plan

Use both fixed and variable expenses that you have compiled so you can help get a sense of what you will save and invest in the upcoming months. Create a tax expenditure budget. With your fixed expenses, you can predict on a fairly accurate level the degree to which you will have to budget. Use a slew of your past spending habits when you are trying to variable expenses. You may choose to break down your expenses even further, between the things you need to have versus those you want to have. As an example, if you want to drive to work each day, gasoline probably counts as a need. What may count as a want is something like a monthly music subscription. When it’s time to make adjustments, the difference between these two becomes important.

  1. Adjust your habits if necessary

Once you have carried out all this, you have everything you need to create your budget. Having documented both your spending and income, you can begin to see where your money is left over and where you can cut back, so you have enough money to put into your goals as well. Attempt to adjust the numbers you’ve tracked to see the amount of money this can free up. If one has already adjusted one’s spending on what they want, evaluate the spending you have on your needs. Lastly, if your numbers still don’t add up to what you would want to see, you can look at adjusting your expenses that are fixed. Doing so is much more difficult and requires a greater amount of discipline, so make sure to carefully weigh your options.

The Bottom Line

A key goal of investing in tax-saving instruments should be to help ensure that you have sufficient funding after you stop working. One priority in your planning should be to take complete advantage of the inducements that are dangled by governments and employers that encourage retirement security. If your company offers a retirement plan, it’s vital not to overlook this planning. If your money has grown for many years, there will be much more than you originally started with, so tax-free withdrawals will be worth it.