How does the new budget affect your financial portfolio? If you are still not in control of your money, now is the time to make the most of the budget, invest wisely and pave your way towards financial freedom, says Raghvendra Nath, Managing Director, Ladderup Wealth Management Pvt. Ltd
The budget is always viewed with great expectations every year, especially by women, whose primary concern is to maintain a fine balance between their careers and homemaking.
Let’s look at this year’s budget for instance. The finance minister informed us that the fiscal deficit for the last year would be 5.9 per cent of the GDP (Gross Domestic Product). Let me simplify that. The fiscal deficit is the difference between the revenues (primarily taxes) generated by the government and the expenditure that it has incurred. If the fiscal deficit is high, it implies that the government has to borrow the shortfall from the market, to fill the gap. In rupee terms a 5.9 per cent deficit translates into #5,21,000 crores. With such a large deficit in place, and the expectation of slow growth of the economy, the government has to really hunt for sources of additional revenues.
So while on the face of it, this year’s budget has given some concessions, in reality every woman in the country would be spending much more than last year.
Where you would be paying more?
Gold has just got costlier. The gold price this year itself has taken a toll. The customs duty and excise on gold ornaments has increased, which means gold jewellery prices will increase across the board. That is disappointing. The smart move would be to start buying gold coins and silver ornaments instead, on which the excise has not been hiked. Let me give you a word of advice. Gold has seen an impressive gain in prices in the last 3-4 years. However, it looks very difficult that such price gains would be replicated in future as well. So, if you are buying gold jewellery for investment and not for wearing, you can have much better options.
Entertainment, travel, etc. too is costlier by 12 per cent. Service tax has been levied on most of the services. At the household level, the LPG prices will rise again. The quantum is not clear yet, but it will certainly raise the eyebrows of most homemakers. This will lead to an increase in fuel prices and, in turn, the prices of all food items will also rise incidentally. The fuel price hike has not happened yet. When it
does, homemakers will have to face lot of challenges with the price rise scenario. Managing finances smartly is the key, as some more shockers in terms of the prices of commodities are expected.
Understand your taxation
This time, although The Budget has increased the basic limit for taxation for women (previously, it was #1,90,000 to # 2,00,000) by # 10,000 but the increase wasn’t specific to women, unlike in the last budget where women had lot to cheer over men. Even though this will have no major impact on tax savings, the move seeks to treat women taxpayers no differently from their male counterparts. The income tax liability with effect from (w.e.f) Assessment Year (A.Y.) 2013-14 will differ only on account of age and income and not on the basis of gender. So, women taxpayers who are used to seeing extra tax benefits will have to get used to this phenomenon, which starts from this budget.
So, how should you plan your finances?
1) Modify your household expenses: Firstly, while the rise in prices or inflation has been in check in the last few months, it looks like the price rise will continue to hurt the average household in the country. Therefore, accepting the reality and modifying the household expenses should be a priority. The best thing to do is to create an annual budget for your household. Most of us are aware of the exact income that we are likely to earn during the year. We should also budget for expenses (planned and unplanned) to ensure that the savings are maximised. A good household budget would ensure that you are spending money at the right places and avoiding wasteful expenditures. It would also ensure that you have adequate savings for your future.
2) Invest right: Follow a few thumb rules to ensure that you are investing in the right places. Safety is the most important element of savings. By safety, I mean the credential of the place where you are investing. For instance, lending money to a relative is far more risky than putting it in a bank. However, only focusing on safety would not make your money work hard for you. You should identify the portion of your savings that you would like to invest for long term, that is more than 10 years. Invest a substantial portion of that amount in equity mutual funds. Equity markets have given the most attractive returns historically when invested for long periods. Just to give you an example, if you invested # 100 in 1979 in the Sensex, it is worth # 18000 now—a gain of 18 times. Or, if you invested # 100 in the year 2000, it has grown to # 300 or three times in 10 years.
3) Spare the time: Financial planning for your future is a regular exercise. Sparing 1-2 hours every month on your finances would ensure that they will be in good shape. It will also do well if you identify a good wealth manager who can advise you regularly. However, rather than blindly following someone’s advice, it makes prudent sense to understand a little bit of finance yourself. Ultimately, it is your money that is at risk if there is a lack of understanding.
4) Ask the right questions. Some of them could be:
Does the prime earner (may be your husband) have adequate life insurance? It is important that there is a life insurance of at least 10 times your annual income. The best way and the cheapest way to get this cover is to buy a Term Plan from a good insurance company.
Do you have your own house? If not, you should first save to buy one.
Do you have adequate medical insurance cover? Even perfectly healthy people should buy
medical insurance.
Have you diversified your investments? It is not good to have all the eggs in one basket.
Have you read the fine print of all your investments? It is important to be aware of the risks rather than get surprised later.
Budgeting, for nation or for our own self, is an extremely important exercise. It not only involves augmenting the sources of income but also regulating the levels of expenditure that we can undertake. A few simple exercises can ensure that you regulate your expenses in a manner where you have adequate savings and then look at investing these savings in assets that are productive, efficient and also safe. After all, a stitch in time saves nine.
