Finance minister Nirmala Sitharaman will present the Union Budget for 2022-23 in the Lok Sabha on 1 February 2022. It will set the tone for the government finances for the year ahead. Financial markets tend to look forward to the government’s estimates for the year 2022-23 on the fiscal deficit and the overall government borrowing.
Just like the government makes plans for the income and expenditure in the year ahead, you could take a leaf out of the Budget process for your finances too. It matters how the rupee comes to your account and how it goes out. Managing your finances is similar to the budgeting exercise of the government. You have to plan your expenditure and investments well and focus on improving your income. It is a good habit to prepare a plan for the year ahead.
Your income
It has been a tumultuous year for everyone. A survey by the Reserve Bank of India published in the latest RBI Bulletin suggests a flat household income sentiment. The current and future expectation of household income slumped in March 2020 and has barely recovered to pre-pandemic levels. That means most of you do not expect pay to rise next year.
You may want to look for a side hustle. If you are in the software services sector, it is time for you to negotiate better pay. There is a shortage of talent, and the attrition rate or the rate at which people quit jobs is high, according to quarterly results announced by these companies.
If you are in hospitality, travel, tourism, aviation, things will be challenging for the next two quarters. However, as the lockdowns end and people move around, the demand for skilled workers would rise.
Your expenditure
Just as the household income sentiment remains flat, the outlook for household spending is also weak. It is proved that the consumption expenditure falls as income uncertainty prevails in multiple surveys that RBI conducted.
Your ability to spend more entire rests on the direction of your income. If your income prospects are weak, there is a good chance that you may end up borrowing to meet your planned expenditure for the year. You should opt for a loan if you are confident of your income in the year ahead.
You may want to refrain from taking loans or using credit cards if you are not confident about your income situation at the moment. When the government borrows more than expected in a financial year, additional borrowing hits the economy by pushing up interest rates. However, you do not have a Reserve Bank of India (RBI) to help you borrow money as you need. You have to weigh your options carefully during the year and strike a balance between your income and expenditure.
Your investments
The government plans and incurs capital expenditure to boost economic growth. When it builds roads, bridges or invests money into creating physical infrastructure, those things generate additional economic employment and boost growth.
Your capital expenditure is your investment for your future goals. You need to allocate adequate portions of your income for long-term and short-term financial goals. You must sit with your financial advisor to draw the plan. Investing regularly through systematic investment plans of mutual funds is necessary for your finances. If the past 12-24 months have taught us anything, a sizeable emergency fund is needed now for every household.
Just like the finance minister makes a speech to the nation on the state of government finances, you may want to get your family together to discuss the state of your household finances. You can sit with all of them and discuss the significant everyday expenses you need to budget for during the year. You may want to take up some renovation work in your home or travel somewhere when allowed. If you plan it right, you may achieve all those objectives.
Your family members may also develop ideas on expenditure they wish to incur or ways they can generate additional income during the year. That could influence your finances for the year.
(The author is editor-in-chief at www.moneyminute.in)