Financial plan offsets life's vagaries

Last week I was mentioning about the event risk of union budget and that we shouldn't be too worried planning for that while investing. How would one plan for an annual event whose outcome is almost every time unknown?

While most of our life goals are medium to long term, how accurately could we accommodate this risk which is very short term in nature. Moreover, the market volatility that accompanies with this doesn't have a structural change and is also temporary.

Many investors inquired if they could take any stance on how to approach the budget risk. But, I'd none to offer as I wasn't aware how the budget pans out and most importantly, how would the markets react to the budget.

This was evident even during this budget session as the markets remained opened on a Saturday and the volatility persisted with indices plunging by the end of the session. This led to huge notional losses to the investors of the stock markets.

Union budget is just an accounting statement of the past year and a vision for the coming year. Certainly, some of the businesses and sectors which the govt. chooses to focus for the year would get high priority and thus an impetus.

It generally tweaks personal taxation while most of the indirect tax has come under the Goods & Services Tax (GST) so not much of direct impact for the individuals.

Yes, taxation is an important factor but that can't be the only criterion while planning for life's goals. The timelines for many of the life goals are longer, in years and sometimes in decades, where one witnesses many such budgets.

So, it could be counterproductive for one to plan such long-term goals through these short-term hiccups. History shows that the stock market reaction (either positive or negative) has shelf space only for a very limited period while the subsequent corporate results and other parameters take over.

Moreover, you can't just change your plans of owning a house, an electric vehicle just because there are some sops available in a budget and abandon the plan as the sops are taken off. Our plan to retire at a desired age, children's education needs, etc. remain unchanged irrespective of the govt. budgets. In my last article, I suggested to sticking to one's own budget irrespective of the govt's.

The best way to address this is to have a financial plan to not let the annual budget derail your goals. A financial plan helps us to define various goals, their timelines and the possible cash requirements while prioritizing each of them.

This assists us to take decisions as earlier planned and control the urge to act irrationally in between. However, it's not to be seen as cast in iron that is impregnable or unamended, but it certainly gives a sense of direction and importance to each of the goals.

More importantly, a financial plan builds in the discipline which helps to create corpus that help in taking advantage changes that are obtained like that we're witnessing through the budget.

While the budget presented by the Union govt. is an annual drill, the implications of the changes mayn't be always be useful and at times could turn detrimental to our wishes. Nevertheless, our life continues and thus the timelines to achieve our goals irrespective of the govt. policies and so financial planning could help us retain the focus while continue to achieve the defined goals.

(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at [email protected])