Why the Budget should not play a key role in managing your personal finance

In a few days, Union Budget 2022 would be presented. And if you are a regular consumer of business news, by now you would have seen several articles and videos trying to predict what might be in store for us in this Budget. But do budget announcements really matter now? Of course, they do.

The Budget sets the stage for the coming financial year and beyond. And while several announcements are made related to different industries and sectors, there are very few things that will impact your personal finance and more specifically your savings and investments.

In my view, you don’t need a budget’s grand announcements to make your investment plan.

Of course, you need to be aware of the taxation changes and other things related to announcements of new scheme proposals once every few years. But broadly, you don’t need budgets to plan your investments.

Undue importance

In fact, many people still give Budgets a lot of unnecessary importance that I think is misplaced when it comes to planning their own finances. I had a talk with a 42-year-old prospective client a few days back. Somehow, he had not been able to save or invest much till now despite earning well. But surprisingly, instead of trying to address that problem, he seemed more interested in deciding whether he should wait for this Union Budget to begin financial planning!

I was a bit surprised at this. Every year, budgets will come and go. New announcements will be made and old ones might be rolled back. But instead of owning up to his mistakes and trying to make corrections, his focus was still on trying to time the Budget!

Coming back, it is true that budgets have an occasional announcement or two that impact different aspects of your financial life. These may be changes in tax slabs, hike or reduction (hopefully) in capital gains taxes, the launch of new savings instruments, etc. But, more or less, nothing dramatic happens. There are no ground-shaking changes every year.

So investors should rather focus on what they can and should worry about. Like what?

What you need to answer

I am sure you know these, but still here are a few questions.

-How much can you invest?

-Do you know the goals you are investing for?

-How much do you need to invest for these goals and for how long?

-Are you investing enough via right SIP amounts?

-What if your investment capability is less than what is required for these goals?

-What should be the asset allocation of these investments?

-How must you handle allocation for different goals?

-Which are the right products to invest in and which are the ones to avoid?

-Do you have sufficient cushion for emergencies? Like an emergency fund?

-Are you properly insured: life and health insurance?

These are the things that one should plan for. What happens in the budget will only slightly change the answers to these questions.

If you have no clear answer to the above set of questions and you are taxing your brains about how to take benefit of budget announcements, then you are doing it all wrong (unless of course you are an equity/options trader looking to make a quick buck from budget moves).

So, my suggestion is that don’t worry too much about what you have absolutely no control over. If you are excited, then go ahead, track the budget and its announcements. Talk and debate about the good and bad of the Budget with your family and friends. But once that phase is over, do something about what you have control over (refer to the list of questions earlier).

Don’t procrastinate and keep postponing your investments plans by using the Union Budget (or any big news/event) as an excuse. And if you have a habit of worrying a lot about things not in your control and not pulling up your (financial) socks, then realize that you need an investment advisor.