Budgets come and go; more like a ritual this happens each year. This year it was no different. Let us analyse some very basic of these factors and understand how they would impact your networth irrespective of budgetary directives.
Interest Rate Movements
Interest rates have been high for quite a while and the possibility of cut/s is lurking as well. Just that those rapid cuts are not happening. For the ones who need clarity, interest rates tend to be low in times of prosperity and are high when there are clouds of financial worries. However in all this there lies a bit of opportunity for the risk averse who can lock in higher rates for few years ahead. While for those having debts e.g. housing loans with long tenures, working capital loans etc the cost of borrowing capital increases. What should you do? Should prepay some part of the money borrowed or should you invest at prevailing rates? There is no direct answer unfortunately however as a general rule when rates are going to fall or are falling you may invest into high volatility assets while on the other hand if rates are going to rise or rising consider moving out of high volatility assets.
Fiscal Situation
The government has to make money. Period. If you and everyone around you needs to make money, remember the government feels the same. If you are stressed the government is also stressed in its own way. Unfortunately then the income for our government is the tax levied on what we spend as expenses, consumable and ofcourse the tax we pay on our earnings. On one side the income tax slabs are sometimes expanded to adjust for inflation and the government loses income there but attempts to compensate itself by increasing its indirect tax collections for example. Provisions for tax deductions exist and may continue to exist however they may not see significant alterations from year to year. However what you do within those parameters will decide the quantum of wealth you will earn. Think again before loading up the limits available by those premiums you pay for redundant policies. Normally you will see each country grappling with deficits and financial woes. But that does not take away your freedom of what you must do with your money.
The Markets
Often wealth is created based on the market you choose to put your money in. So basically there are three markets that we are normally concerned with viz., debt market, equity market & real estate market. The choice of which market to go to would naturally depend on current financial strength and future needs. Often investors of debt market know what they are going to get but they will seldom get supernormal returns and seldom will they become wealthy. Persons investing in the other two markets tend to become billionaires if they do not do anything absurd. So if you are not a part of any of these parties something is seriously wrong with your financial management somewhere. There are many who think hoarding money in bank accounts will help. The government does its own bit by offering deductions for you to invest money in assets that can create wealth for you. Now it is for you to take the cue and invest much more for your financial prosperity.
Quick Tips
l Plan for your long term goals by investing into equities. Irrespective of tax and tax benefits it is one of the best assets classes.
l Have fixed interest instruments but do not be over cautious.
l If your salary has a flexi component; plan it really well and use that facility to your best advantage. For e.g. there is no point having an HRA component more or double of your rent (if you pay rent). Don’t go overboard in LTA at the cost of reduced cashflows just to save tax.
l If you have a choice you may opt for contractual employment as professional / self- employed and your income is treated as professional fees. Your cashflow is higher and you can avail many legal benefits like business expenses, depreciation etc not available to you under salaried status. You may lose contributions to PF, Gratuity etc but with an 8% return and tax treatment you might just be better off without it.
l If into business with multiple entities then you can consider planning your income (as far as legally possible) to take maximum advantage of each independent entity.
lRemember it is not the budget that dictates your financial future; it is the wealth planning you do that will not only help you through the years but also help you sail through financially rough weather.
