1. Build your Credit Score
2. Reduce your Current Borrowing / EMI Costs
The finance minister Nirmala Sitharaman just presented her once in a lifetime Budget on February 1. The Union Budget takes care of the country’s finances and make sure that all segments are considered. These include health, education, financial markets, infrastructure, employment, corporates and so much more. Now, the Budget focuses on more macro matters, but we can learn from the announcements made and make changes in our money matters. From this year Budget, here are 5 personal finance lessons savers and investors can learn.
Health and wellness were given precedence in this year’s Budget. With the pandemic putting huge pressure on existing healthcare infrastructure and claiming thousands of lives, the need for boosting spending on health facilities was paramount. Experts say investors too need to accord priority to health before anything else. Your savings wont last long if you are unable to keep fit and are constantly fending off illnesses.
“Ensuring body wellness can save a lot of money that goes towards doctor consultations and medical bills,” insists Rohit Shah, CEO, Getting You Rich. Apart from keeping yourself physically fit, it may be a good idea to go for preventive diagnostics tests regularly. Nowadays, comprehensive tests are available that can flag off any issues that may not yet have surfaced. Besides, adequate health insurance cover should be taken.
If you have been putting it off till now, it is time you bought a comprehensive cover for yourself and family members. The pandemic has shown that a low cover may not suffice in times of need. A health cover of at least Rs 10 lakh is a must.
The government has been hailed for stepping out of its comfort zone and splashing the cash to get the economy back on the growth path. The Budget has ramped up spending like never before. The government will borrow heavily to finance this largesse. But while this is a much-needed booster shot for the economy, taking a similar approach in your personal finances is not advisable. Hemant Rustagi, CEO, Wiseinvest Advisors, says, “This philosophy works for the economy because the government is spending to create assets to spur growth, not for consumption purposes.”
Many borrow willy-nilly to stave off a financial crisis. This usually leads to a bigger debt trap. Rather than take on a heavy loan burden, identify investments that can be monetised. The government has shown the way to fund large deficits through disinvestments. “When facing a cash crunch, take a leaf out of the government’s book and try to monetise existing assets,” suggests Shah. Do not get into the habit of revolving credit on credit cards. Whenever possible, pay off accumulated balance in full and bring down your card utilisation.
Budget 2021 also represents a change in government thinking on key policy matters, necessitated by economic compulsions. By presenting a counter-cyclical fiscal policy and making bold moves towards privatization, among other steps, the government has shown willingness to adapt to circumstances. Investors should also maintain a degree of fluidity in their approach to investments. “It is time investors start looking beyond traditional investment avenues with interest rates at all-time lows,” argues Rustagi.
As personal circumstances change, by ready to recalibrate existing financial plans and goals. For instance, certain life events like a job loss or prolonged illness may require you to go back to the drawing board. Certain goals may have to be refined or even pushed behind indefinitely. At other times, like the birth of a second child, you may have to scale up investing outgo considerably. Household budgets may need to be reworked accordingly.
A key focus area for the Budget was infrastructure-related spending. A sustained push towards building new roads, bridges, railways, ports and airports will have multiplier effects on the economy over the long term. This long-term perspective should be a cornerstone for any investor’s portfolio, insists Rustagi. “Always keep focus on the longer term picture even if it means making sacrifices today.”
Refrain from seeking immediate rewards or quick gains by hunting for high-return investments. Link investments to well-defined goals. Maintain savings discipline regardless of near-term market swings to chip away at your long-term financial goals little by little. Give reasonable time for equity-related investments to work.
The Budget sprung a surprise by taking away some tax-free havens enjoyed by high earning individuals. By scrapping the tax-free status on maturity proceeds for certain high value Ulips and interest income from EPF contributions, the Budget has plugged the tax benefits relied upon by a few. This holds an important lesson for everyone – investing solely with an eye on taxes is a bad idea.
Not only can a change in tax regime leave you staring at a large liability later, it could also trap you into bad investments. Unfortunately, Indian savers are often guided by tax considerations in investing decisions. Don’t stash money away in low return, poor quality assets just to save tax. Check whether it suits your risk profile and if it fits into your overall asset allocation.