Stick to your budget for productive investing

Last week I was interacting with an investor and he would like to start investing as per the discussed financial plan. And as we began to get to the nitty-gritty on the execution part, the topic of discussion veered towards the upcoming budget from the union government. I appraised him of the changes in the last few years in the Long-Term Capital Gains taxation and few other tweaks that happen once in a while during budgets. The investor then quizzed if we could wait for this year's budget to conclude so that investments could be initiated.

Of course, his concerns were genuine with so much expectations that surround every budget and the accompanied dread amongst the investors when there any proposals that could increase the tax. Despite all the hype and hoopla every year, the prominence of it is receding in the last few years with the introduction of Goods & Services Tax (GST). The GST council decides the tax tweaks which meets periodically along with the consultation of the states and especially in 2019, the finance minister made multiple path-breaking press announcements post-budget rendering the annual ritual to a mere accounting results similar to that of the corporate.

As the government chose to respond to the changing economic environment, they didn't wait for the annual review date to come up with solutions or firefighting strategies. With these dynamic changes, the budget no longer has the charm waiting for the great announcements to time the event. Even if I put all these arguments aside, budget announcement is an annual exercise which basically is the culmination of the past year's balance sheet of the govt and the future expectation of what it intends to do.

So, should an individual investing for the long haul consider planning for the annual event of budget? Sure, the extent of fiscal deficit the government runs, or cuts does have impact on the stock markets and debt markets as well thereby influencing the returns on individual investor's investments. A higher deficit could impact the sovereign rating and hence the difficulty of raising funds by the government, etc. But these are certainly out of our control and one should worry about those things that could be controlled by us.

Ideally, every investor would be better off contemplating and reviewing their own budgets. Proper budgeting helps one to understand what they spend upon, keep a tab on their impulsive behavior and thus leading to better spending habits. It helps in tracking their set financial goals and help them remain on course of their important life goals. Personal budgeting also helps in contemplating their own savings pattern too.

Planning and sticking to a monthly or annual budget is the need of the hour and tracking the expenses forms the first step towards attaining that goal. This could start with as small or trivial things like one's cable, internet and mobile packages. With the data prices at low and improved mobile penetration, one should consider if they need a broadband connection at home. And if their viewing is restricted to streaming content then one should consider the continuation of the traditional cable connection and even the basic package. Such minute tracking would make one frugal and also get rid of unproductive or unnecessary subscriptions.

The greater convenience of online shopping and also the materialism has caught with our instincts. Moreover, the discounts and offers would only elevate our craving to indulge shopping, many times, of things that were not needed or rarely used. To better take advantage of these offers, one could categorize a list (wishlist) of what are the essential items and the rest as luxury. And if the union budget proposes a cut or hike, one could check their list to prioritize the purchases. This way they could either prepone or postpone an expense and also only those of the needed.

To stick to budgets, there are now some very inexpensive tools available which help us to prepare, stick and follow to our defined allocations. But, irrespective of the budget announcements, one could stick to plan of savings and investments as the power of compounding happens only when permitted with appropriate time.

The author is a co-founder of "Wealocity", a wealth management firm and could be reached at knk@wealocity.com

(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at knk@wealocity.com)