What will the Budget bring for the middle class?
On the eve of Budget 2022, we are busy discussing expectations of different sectors and possibilities of what the Finance Minister would reveal.
It is also the time when everyone has suggestions for what the government should do. Especially so, since some people are just coming out of financial woes inflicted by Corona Virus.
MIDDLE CLASS EXPECTATIONS
Annual Budget for the middle class hinges around taxation, social welfare schemes and interest rates.
The Indian middle class appears keen to get more tax concessions in the form of
- Higher standard deduction
- Increase in exemption on home loan EMIs paid
- Enhancement in maximum limit on investments under 80C
- Premium paid on health insurance to receive favourable treatment
Inflation is a serious concern, yet bank depositors would like the interest rates to go up now. The income of retired people and those who have lost their active sources of income, suffers drastically in a low interest rate regime.
WHO IS THE MIDDLE CLASS?
People in the income range of Rs. 2 lakhs to Rs.10 lakhs p.a. constitute the middle class in India. People who earn more than Rs. 10 lakhs p.a. do not exactly feel rich, so we have coined a term ‘upper middle class’.
Let’s leave definitions aside. How are you going to feel if Budget 2022 falls short of expectations? What if the Finance Minister fails to deliver goodies like a fairy godmother or Santa Claus?
What is it that you can do to manage your personal finances better?
FINANCIAL PLANNING TIPS FOR THE MIDDLE CLASS
PAY TAXES BEFORE YOU PAY YOURSELF
Brian tracy says, “Eat the frog first”. Look at taxes in the eye and face the facts. This is for people earning more than Rs. 5 lakhs p.a.
Many authors and coaches on financial success ask you to pay yourself first. But you need to pay taxes before that.
How do you see taxes? Undoubtedly, it is a liability from which there is no escape.
But do you see it as an opportunity to save for retirement, if you do better with a compulsive push? Are you already invested in schemes under Section 80C & 80D. The old tax regime will work better.
Are you just starting out your career, and prefer the freedom to invest money wherever you want? You can choose the new tax regime with lower rates, but engage a financial planner to help you put some money aside in safe investments. Diversification should be the key word, lest you risk all your savings in high-risk asset classes like equity or cryptocurrency.
SAVINGS COME BEFORE INVESTMENT
You cannot invest unless you spend less than your total income.
But rising cost of living is the elephant in the room nobody wants to talk about. Maintaining status quo and social esteem is necessary.
Here are a few tips for financial wellness, irrespective of what Budget 2022 has to say. Let us create a healthy personal budget for the middle class.
1. Manage debt
Do not buy a house only to get tax benefits from the home loan. It is an added cost, and it may not be a wise idea to block huge amounts in real estate.
A vehicle loan does not get you tax benefits. Consider the option of buying used vehicles in good condition. It saves a lot of money.
It is easy to give in to the temptation of a personal loan, credit card debt or Buy Now Pay Later schemes, but it hits hard if not managed properly. One should borrow only in case of dire need, not for ‘good-to-have’ things.
2. Avoid paying penalties
Set reminders to pay utility bills, taxes and insurance premiums in time. Use the auto-debit facilities offered by banks.
If you have opted for the services of a CA or a firm to pay your taxes, log into the sites yourself to check if everything is in order. They may fail on some parameter, and then ask you to pay the penalty along with their service charges. Entrepreneurs should especially take care of this while paying GST.
Paying penalties is just waste of money.
3. Follow online safety rules
You cannot afford to lose money on frauds. The loss sets you back by at least a couple of months in your financial planning.
4. Compare prices
All of us have our favourite apps for online shopping or investments.
However, do compare costs on different platforms. There is a difference between Ola and Uber fares. There is a difference between prices on Big Bazaar, Big Basket and your neighbourhood grocer who gives home delivery. Choose the best option to optimise costs with convenience.
The charges on your investing app or micro-investing app amay be high. Explore options of investing in direct plans once you learn the ropes.
5. Higher education of children
Spend some money on career counselling, and assess their propensity. It does not make sense to spend huge amounts on a professional course they do not have an aptitude for.
If the child is not too good in academics, do not burn all your savings in sending him/her to a premium institute. Focus on developing skills in a field they are interested in.
Explore all options in scholarships, before you apply to a bank for education loan. Banks may ask you to mortgage an asset which is of critical importance in your retirement plan.
We are all emotional when it comes to spending on our children, but focus on making them financially literate. It will prevent unreasonable demands and the pressure on you to part with money.