Budget should you worry or invest wisely – finale

Budget should you worry or invest wisely

With budget around the corner and a sluggish economy, everyone is worried and eagerly waiting for the Finance minister to dish out something exciting or wave a magic wand and make everything oki!! Everyone is hoping for a tax cut or some other similar gifts. But the irony is without tax income how do you expect the government to increase spending for infrastructure and how to do you expect the government to infuse much needed money into the economy.

So how does Tax revenue affect growth?

The last two years, that is 2018-2019 and this current year, the tax revenue has decreased considerably.  In fact this year for the first time in two decades, there has been a fall in the direct tax collection. Direct taxes account for almost 80 percent of the total tax collection.  As per reports as published by the Economic times – The Income tax department has been able to collect Rs 7.3 trillion till January 23rd which is 5.5 percent below the amount collected same time last year. The Government was targeting at collecting Rs 13.5 trillion but with the decrease in the businesses cycle, this target looks unachievable.  The effects of this can be seen on government spending as well.  In the current scenario, without government spending, the revival of economy seems difficult.  Also, indirect taxes are out with coming of GST whose committee meet every month to analyse and bring out reforms as and when they seem necessary which has been far and wide and with time, the GST reforms are settling down and hence less changes happen over time.

What has tax collection should concern you regarding your investment decision?

PROBABLY NOTHING.  Although decrease or increase in income tax affects investments amount but tax rate cuts or increase should not affect your investments decisions.  Why –

  • Achieve goals – why does a person invest? Reasons can be numerous like buying a house, car, retirement, children or in general being rich. SO your investments are decisions which are based on achieving these goals and not on budget.
  • Insurances – an individual will always require medical and life insurances; budget or no budget, slow down or no slow down. You already have a tax benefit for this category and trust me, no finance minister is going to take away tax benefit on insurance premium paid. So an individual planning on renewal of medical insurance or buying new policy, should not be waiting for the budget but should just go ahead.
  • Emergency funds – emergencies come unannounced and one always has to be prepared for it. How – by keeping at least three months worth of cash’, equivalent to your mandatory expenses, aside in liquid assets. In other words, funds that are readily available. Will budget change your decision about keeping aside emergency funds?,    Even for selecting the liquid asset for investing, budget should not be a factor in your decision.
  • Retirement – retirement planning is a long term planning, especially for individuals in their 20s, 30s or 40s. You should be looking for something like a long-term Systematic Investment Plan (SIP) or investment in assets like real estate. This decision should never be based on budget, as you cannot predict every years budget’ and the changes it will have on your asset class, and churn the portfolio accordingly. In fact you will stand to lose out more than gain with such a strategy.
  • Investments – where to invest, what to invest in, how long to invest, these are all variables which are in your control and which has to be aligned with your needs and goals and not with external factors such as Budget.

This years budget is much awaited and hyped due to slowing economy and there is hope that there will be certain announcements that will make business environment more conducive to growth and consequently result in better cash flow in the our hands.

That being said, Budget is not a magic pill that can solve problems overnight.  These are problems that plague the world and are not just ours.  It will take time to get back on its feet.  Till then we have to more concerned about our own financial goals and needs and undertake investments based on these and not what the Budget has to offer.

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