It is that time of the year when the union budget is around the corner. Financial media is filled with experts offering predictions about what might be in store for Indians in this year’s Budget 2023.
It won’t be wrong to say that the budget is one of the most closely tracked events in India and financial markets. And rightly so. It has a widespread impact on almost all areas and hence almost all Indians are curious about what is going to happen in the next budget.
But are union budgets really that important and matter so much when it comes to your personal finances and investments?
It does matter to an extent as many announcements about taxation and investment schemes do impact how your income, capital gains, etc. would be taxed. However, managing personal finances is a lot more than just about taxes.
I tell this to my clients as well who ask me about the impact of the Central Budget. You don’t need to focus too much on budget announcements to plan your investments properly. You of course need to be aware of taxation rules and other related things but that’s it. The impact of your financial decision is a lot bigger than that of budget announcements when it comes to your financial life.
Let’s take the case of a young earner who has just started his/her career a few years back. What should they be thinking about:
- How much surplus do I have after all expenses? And am I investing it correctly or it just leaks out of my account due to random expenses?
- Do I have adequate term life insurance?
- Is it enough for me to have office health insurance or do I need to buy one for myself and my dependents separately as well?
- Do I have a contingency buffer or emergency fund that will come in handy if things go wrong for a few months and I have some urgent, unplanned, and uninsured expenses?
- What are my short-medium and long-term goals?
- Are these goals realistically possible given my current cash flows and savings ability?
- How much do I need to invest for these goals (right SIP amount) and in which instruments?
- How much of the amount that I will invest should be invested in equity and how much in debt instruments?
Did you notice something? None of these questions, which I assume you realise are important, are budget dependent. Isn’t it?
These are the things that actually matter and need your real attention. What happens in the budget will be new for a few weeks. But after that, once again, the questions (above) are what will decide how your personal finances take shape.
What I want to highlight here is that the budget is not in our control. Apart from the casual discussions about budget, we need to focus seriously on what we can control. And that is what the above questions try to help you become aware about.
If you are unsure about how you are doing for most of the above questions and are instead worried about what will happen in the budget, then that will not work. You will need to change how you manage money. And if you can’t do it alone, take help from a good investment advisor.
Budgets will announce new schemes which are better than others or make some existing ones more tax-efficient or otherwise. But the basics of prudent money management don’t change. They are not dependent on budget. So, you need to get major things right and then when you start investing, you just need to go for the most tax-efficient options. Not just in present but also in which are tax-efficient at the time of maturity.
Never make the mistake of investing in the wrong products just because you can save some additional tax now. Product suitability should come before tax-saving. At all times.
There is always a lot of hype about the importance of the Budget. But unless there are some really big announcements (and these have become quite rare), Budgets have become inconsequential when it comes to their impact on your investment plans. So please don't bother too much about the budgets. They won’t alter your long-term plans much.
Budget is good for office water cooler discussions and when you are catching up with your friends. But that’s about it. The budget’s impact on your wealth will always be short-term. And you cannot bank on union budgets alone to plan your investments properly.
Dev Ashish is a SEBI-Registered Investment Advisor and Founder (Stable Investor). He provides fee-only financial planning and investment advisory services to small and HNI clients across India.