Over the next few days--at least till the weekend--you'll be subjected to a lot of budget-related news on newspapers and TV. Maybe you'll read some of it and maybe you won't, most likely you won't. That's a hard truth that large parts of the media is loathe to admit--the reams of newsprint and the hours of airtime that are dedicated to the Union Budget are mostly a waste. In this era of GST and stable tax rates, most people need to spend maybe ten minutes on budget news, and that too only if there are any changes in personal taxation and tax-saving investments. There are larger, national issues that depend on the budget, but let's face it, if you don't worry about those on the other 364 days, then you are not the sort to do so on this one day.
However, in the financial lives of most of us, there is an actual lesson to be learned and something emulated about the budget process, and that is the very idea of budgeting itself. If you do dig into the Union Budget, you could possibly be impressed by the amazing, almost superhuman precision of the budget estimates. Each item in the budget estimates is published to two decimal digits (that is, to the nearest lakh) in totals that can go up to lakhs of crores.
In last year's budget, the total estimated government expenditure for this year was Rs 29,20,484.37 crore. The '.37' at the end is a sum of Rs 37 lakh, thus specifying the expenditure to the last lakh. Rs one lakh is 0.0000003 % of the total budget estimate. And yet it's there, for whatever it's worth. Mr Jaitley didn't ask Parliament for a rough amount of money. He didn't say, 'give me about Rs 25-30 lakh crore, more or less, and we'll see how it goes'. He specified the amount to the last lakh, and implicitly, to the last paisa. The reason for such precision in the budget is mostly legal, having to do with the fact that each bit of expense has to be approved by parliament. Do note that I said precision, not accuracy. As the revised estimates will show, the real number is a little bit different.
However, even without eventual accuracy, precise estimates play a role, and most of us, in our personal financial lives swing too much to the other extreme. Most of the times, let alone precise estimates, we make no numeric estimates at all.
One savings-related area which is plagued by vague, non-numeric questions and answers is financial planning, at least as it is generally delivered. The classic question here is 'How much is your risk tolerance?', to which no meaningful answer is possible. Instead, financial planning should be entirely done with questions that have quantitative answers. How much do you earn? How long will you keep earnings. How much money will you need for your child's education? When will you need that? When do you plan to buy a house? How much rent do you pay? Etcetra etcetra.
Here's an alternative way of doing financial planning. Write down all such questions you can think of and write estimated answers. Draw a lesson from Mr Jaitley and make precise estimates, even if you know they'll turn out to be different.
Since the answers are all just estimates about the future, make slightly pessimistic guesses. The best way to write these down is not as questions or answers but as a series of cash inflows or outflows, along with the expected date for each. In fact, since you don't have law and parliament to constrain you, wherever the amount is an estimate, write the optimistic amount as well as a pessimistic amount. Similarly, when the dates are uncertain, just write the nearest and the latest estimate. Now work your way down this list, adding and subtracting the incomes and expenses as you go. If you're handy with any spreadsheet software, this task is very simple. This is the best current estimate of your future financial history. Believe it or not, this is the difficult part of financial planning--the actual setting of the goals, with actual numbers. I suspect it's the same for the government.
So after seeing what the government budget is like, we'll take this forward to the next stage, and figure out what to do with these estimates in another column in the near future.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
