What to look out for when preparing a budget

K. ARAVIND

In the coming months, the central and state governments will be busy preparing the Budget. Finance Minister Nirmala Sitharaman has already started discussions at various levels ahead of the preparation of the Union Budget. Individuals have many lessons to learn from the way governments prepare budgets. Many things that are done in government budgets cannot be done by financially disciplined individuals.

Fiscal deficit is one of the main issues discussed in the Budget discussions. Fiscal deficit refers to how much more is spent than government revenue. Often the government Budget is also in deficit.

But in the case of individuals, the deficit is a stepping stone to the financial trap. If you spend more than what you earn, you need to control that habit as soon as possible. The first step is to calculate your monthly expenses and debt. Change the condition of borrowing for monthly expenses. Be careful not to fall into the debt trap created by the use of credit cards.

The recent increase in the debt of the Central Government is significant. But the government does not have to worry too much about debt. The government can increase revenue by raising taxes and borrowing at lower interest rates. But the situation of individuals is different. According to inflation, the monthly income does not have to increase every year. Therefore, individuals should always be careful not to increase debt but to reduce it.

Government accounting often lacks capital and income. The government also treats the proceeds from the sale of assets as income. For example, proceeds from the sale of shares of public sector companies and telecom spectrum auctions are used to reduce the fiscal deficit by including it in the annual income. Only a small portion of this money used for expenses is reinvested in new assets.

Individuals should not view capital and income as one. If the land is sold or the investment in bonds or shares is withdrawn, it must be reinvested in other assets. Do not allow wealth to be wasted on excursions or shopping.

One of the reasons why the central government is languishing due to lack of funds is its various expenditures. The government incurs a number of expenses ranging from interest to pension. Taking on such a wide variety of financial responsibilities in the case of individuals can affect not only financial health but also physical health. You need to think twice before heading for the kind of fixed extra costs that can affect the financial balance between the various costs such as EMI of the loan, investment through a SIP and insurance premium.

It is common for governments to announce many projects in the budget. Although many observations are made about the big goals and possibilities of the newly announced projects in the budget discussions, such discussions do not reach the level of examining what happened to the projects announced in the past.

Many of the projects announced are routinely dragging on. This is another lesson to be learned in financial planning. It can be difficult for individuals to move forward with financial planning with multiple goals in mind. It is important to make a planned investment for three or four achievable goals. That’s the way towards a long-term financial independence.