Many individuals say finance is not their cup of tea. They don't lose sleep over, say, a repo rate hike by the Reserve Bank of India or falling industrial production numbers or soaring inflation. For them, these are some numbers that figure prominantly in the headlines. However,according to financial experts, these numbers indicate much more than the financial health of the economy; they also have direct impact on the financial health of the individuals.
The figures often tell how the individual is going to earn, spend, invest and so on. Take, for example , the recent repo rate hike. That clearly tells an individual that the interest rates are likely to stay firm or go up. That means he or she is likely to earn more on deposits and pay more on loans. In short, the next time you come across these economic indicators , pay a little more attention to them.
1.FALLING GDP
IMPACT ON YOUR MONEY:
Here, the share of the pie itself shrinks. This will hurt either those on the fringes (such as lowskilled white-collar workers, though skilled blue-collar workers such as barbers, plumbers, etc. will not be affected symmetrically ) or those in the direct line of fire (say banking/real estate professionals).
HOW YOU CAN MITIGATE THE IMPACT :
"The key here is to enhance your marketability in the job market. You could do this by building your educational and technical skills, networking with industry professionals, etc. Thus, you may be on top of their mind whenever an opportunity comes by," says Jayant Pai, CFP and vice-president , Parag Parikh Financial Advisory Services (PPFAS). If you are self-employed , you will have to find ways to reduce wastage and enhance efficiency of operations. "If you are on a consumer-facing company you could focus on catering to relatively price-insensitive segments such as senior citizens. Many in the developed world are doing this as they are facing a structural problem of ageing populations. But this segment is wealthy and relatively immune to the current economic troubles ," says Pai.
2.RISING CRUDE OIL PRICES
IMPACT ON YOUR MONEY:
In the developed world, the impact is higher as price changes trickle down to the consumer almost immediately . In India, the effect is more muted as price moves are lumpy on account of subsidies for several petroleum products.
HOW YOU CAN MITIGATE THE IMPACT :
By using more fuel-efficient cars, opting for public transport , using solar heaters, etc.
3.RISING INFLATION
IMPACT ON YOUR MONEY:
It is a silent tax on everyone (not only the rich). In fact, the poor/middle class are hurt more if inflation is more pronounced in the case of essentials. It also eats into the value of idle cash lying in your bank account. Similarly, on investments you have to compute the real rate of return to assess the impact of inflation. Fixed deposits, Public Provident Fund or National Savings Certificate assure safe returns but are not capable of beating inflation. Real estate, gold, and equity are considered good hedges against inflation on a long-term basis. Whenever you invest in an instrument , compute the future value after accounting for an inflation of 8% to 10% to get accurate results.
HOW YOU CAN MITIGATE THE IMPACT :
If your income is unchanged , you will have to cut back on expenditure to meet the rising cost of essentials. Otherwise , you could raise your income either by taking up a second job/vocation during your spare time. "In case of investments, it is crucial to provide a certain mark-up at the planning phase itself . For retirement planning, every individual has to do a certain loading on the numbers today based on their lifestyle to get the required future value. Again, this loading has to vary from period to period so as to reflect the true value," says Kartik Jhaveri, certified financial planner , Transcend India.
4.RISING FOOD INFLATION
IMPACT ON YOUR MONEY:
It has a negative impact as a larger part of your income is taken up by such relatively inelastic expenditure . "The demand for basic necessities for food is inelastic to price rise. Hence, when food prices go up, they would eat into your savings as you cannot cut down beyond a point on such needs," explains Shubhada Rao, executive vice-president and chief economist at YES Bank.
HOW YOU CAN MITIGATE THE IMPACT :
By downtrading to the extent possible, aggregating your purchases by visiting supermarkets for bulk purchases (however, do not overstock perishables), taking advantage of group buying wherever possible, etc.
5.FALLING RUPEE
IMPACT ON YOUR MONEY:
"Indian investors in global assets (mutual funds, real estate) will benefit due to positive translation effects . Negative macro-economic impact may percolate to individuals at a later stage. Investors who have invested in companies with unhedged FCCB borrowings could see a steep fall in share prices but investors in exporting companies will benefit ," says Pai of PPFAS.
HOW YOU CAN MITIGATE THE IMPACT :
You cannot do nothing much at the micro-level . At the most, you could avoid investing in companies that are negatively affected.
6.RBI POLICY REVIEW AND REPO RATES
IMPACT ON INDIVIDUALS AND THEIR FINANCES:
A sustained hike in these rates negatively impacts all types of borrowers as the quantum of EMIs creeps up slowly. Investors may benefit by investing in floating rate funds. After a series of hikes, it may also make sense to lock into longer-term deposits offering high rates.
HOW YOU CAN MITIGATE THE IMPACT :
Borrowers can mitigate the higher EMI by refinancing, prepaying (either in whole or in part) costlier debt such as credit cards dues and personal loans (in case of personal loans, RBI does not permit part prepayment). Also, refrain from frivolous loans such as those for holidays or extravagant home improvement . Fresh borrowers should borrow only up to about 80% of their eligibility limit so as not to overstretch themselves.
7.MORE SERVICES UNDER SERVICE TAX NET
IMPACT ON YOUR MONEY:
The ambit of service tax has largely expanded and evolved over the past few years. For example, with just three services at the time of introduction of this tax, today more than 100 services are included in the service tax net. It is something that is out of an individual's control. At the most one may hope that a hike in such indirect taxes may result in direct tax rates not being raised periodically. Also, wherever there is an element of discretion , one may use the services more sparingly.
HOW YOU CAN MITIGATE THE IMPACT :
Try to ensure that the overall impact is neutral. "For instance , if you decide that your mobile phone bill should not exceed . 1,500 based on a 10% service tax rate, then your usage will roughly amount to . 1,363. Now, suppose the service tax is raised to 12.50%, your usage will have to reduce to . 1,333 so that your bill amount remains unchanged," says Pai.
8.BUDGET MEASURES AND INDIRECT TAXES
IMPACT ON YOUR MONEY:
It is not just the 'income-tax' but also the 'indirect tax' that is important as it literally takes out money from an individual's disposable income. "Indirect tax includes customs duty, excise duty, sales tax/VAT, service tax, etc, which are generally levied on import, manufacture /sale of goods and services. The price that an individual customer pays for a product/service includes not only the actual cost of the product, but also various indirect taxes. The indirect tax liability is ultimately shifted to the end-customer ," says Vineet Agarwal, director - tax and regulatory services, KPMG.
HOW YOU CAN MITIGATE THE IMPACT :
It is difficult to pre-empt such announcements. At the most, one can devise a strategy for FY 2013 in March 2012 based on direct tax changes that are announced on February 28, 2012, during the Budget speech
~
Source : ET
The figures often tell how the individual is going to earn, spend, invest and so on. Take, for example , the recent repo rate hike. That clearly tells an individual that the interest rates are likely to stay firm or go up. That means he or she is likely to earn more on deposits and pay more on loans. In short, the next time you come across these economic indicators , pay a little more attention to them.
1.FALLING GDP
IMPACT ON YOUR MONEY:
Here, the share of the pie itself shrinks. This will hurt either those on the fringes (such as lowskilled white-collar workers, though skilled blue-collar workers such as barbers, plumbers, etc. will not be affected symmetrically ) or those in the direct line of fire (say banking/real estate professionals).
HOW YOU CAN MITIGATE THE IMPACT :
"The key here is to enhance your marketability in the job market. You could do this by building your educational and technical skills, networking with industry professionals, etc. Thus, you may be on top of their mind whenever an opportunity comes by," says Jayant Pai, CFP and vice-president , Parag Parikh Financial Advisory Services (PPFAS). If you are self-employed , you will have to find ways to reduce wastage and enhance efficiency of operations. "If you are on a consumer-facing company you could focus on catering to relatively price-insensitive segments such as senior citizens. Many in the developed world are doing this as they are facing a structural problem of ageing populations. But this segment is wealthy and relatively immune to the current economic troubles ," says Pai.
2.RISING CRUDE OIL PRICES
IMPACT ON YOUR MONEY:
In the developed world, the impact is higher as price changes trickle down to the consumer almost immediately . In India, the effect is more muted as price moves are lumpy on account of subsidies for several petroleum products.
HOW YOU CAN MITIGATE THE IMPACT :
By using more fuel-efficient cars, opting for public transport , using solar heaters, etc.
3.RISING INFLATION
IMPACT ON YOUR MONEY:
It is a silent tax on everyone (not only the rich). In fact, the poor/middle class are hurt more if inflation is more pronounced in the case of essentials. It also eats into the value of idle cash lying in your bank account. Similarly, on investments you have to compute the real rate of return to assess the impact of inflation. Fixed deposits, Public Provident Fund or National Savings Certificate assure safe returns but are not capable of beating inflation. Real estate, gold, and equity are considered good hedges against inflation on a long-term basis. Whenever you invest in an instrument , compute the future value after accounting for an inflation of 8% to 10% to get accurate results.
HOW YOU CAN MITIGATE THE IMPACT :
If your income is unchanged , you will have to cut back on expenditure to meet the rising cost of essentials. Otherwise , you could raise your income either by taking up a second job/vocation during your spare time. "In case of investments, it is crucial to provide a certain mark-up at the planning phase itself . For retirement planning, every individual has to do a certain loading on the numbers today based on their lifestyle to get the required future value. Again, this loading has to vary from period to period so as to reflect the true value," says Kartik Jhaveri, certified financial planner , Transcend India.
4.RISING FOOD INFLATION
IMPACT ON YOUR MONEY:
It has a negative impact as a larger part of your income is taken up by such relatively inelastic expenditure . "The demand for basic necessities for food is inelastic to price rise. Hence, when food prices go up, they would eat into your savings as you cannot cut down beyond a point on such needs," explains Shubhada Rao, executive vice-president and chief economist at YES Bank.
HOW YOU CAN MITIGATE THE IMPACT :
By downtrading to the extent possible, aggregating your purchases by visiting supermarkets for bulk purchases (however, do not overstock perishables), taking advantage of group buying wherever possible, etc.
5.FALLING RUPEE
IMPACT ON YOUR MONEY:
"Indian investors in global assets (mutual funds, real estate) will benefit due to positive translation effects . Negative macro-economic impact may percolate to individuals at a later stage. Investors who have invested in companies with unhedged FCCB borrowings could see a steep fall in share prices but investors in exporting companies will benefit ," says Pai of PPFAS.
HOW YOU CAN MITIGATE THE IMPACT :
You cannot do nothing much at the micro-level . At the most, you could avoid investing in companies that are negatively affected.
6.RBI POLICY REVIEW AND REPO RATES
IMPACT ON INDIVIDUALS AND THEIR FINANCES:
A sustained hike in these rates negatively impacts all types of borrowers as the quantum of EMIs creeps up slowly. Investors may benefit by investing in floating rate funds. After a series of hikes, it may also make sense to lock into longer-term deposits offering high rates.
HOW YOU CAN MITIGATE THE IMPACT :
Borrowers can mitigate the higher EMI by refinancing, prepaying (either in whole or in part) costlier debt such as credit cards dues and personal loans (in case of personal loans, RBI does not permit part prepayment). Also, refrain from frivolous loans such as those for holidays or extravagant home improvement . Fresh borrowers should borrow only up to about 80% of their eligibility limit so as not to overstretch themselves.
7.MORE SERVICES UNDER SERVICE TAX NET
IMPACT ON YOUR MONEY:
The ambit of service tax has largely expanded and evolved over the past few years. For example, with just three services at the time of introduction of this tax, today more than 100 services are included in the service tax net. It is something that is out of an individual's control. At the most one may hope that a hike in such indirect taxes may result in direct tax rates not being raised periodically. Also, wherever there is an element of discretion , one may use the services more sparingly.
HOW YOU CAN MITIGATE THE IMPACT :
Try to ensure that the overall impact is neutral. "For instance , if you decide that your mobile phone bill should not exceed . 1,500 based on a 10% service tax rate, then your usage will roughly amount to . 1,363. Now, suppose the service tax is raised to 12.50%, your usage will have to reduce to . 1,333 so that your bill amount remains unchanged," says Pai.
8.BUDGET MEASURES AND INDIRECT TAXES
IMPACT ON YOUR MONEY:
It is not just the 'income-tax' but also the 'indirect tax' that is important as it literally takes out money from an individual's disposable income. "Indirect tax includes customs duty, excise duty, sales tax/VAT, service tax, etc, which are generally levied on import, manufacture /sale of goods and services. The price that an individual customer pays for a product/service includes not only the actual cost of the product, but also various indirect taxes. The indirect tax liability is ultimately shifted to the end-customer ," says Vineet Agarwal, director - tax and regulatory services, KPMG.
HOW YOU CAN MITIGATE THE IMPACT :
It is difficult to pre-empt such announcements. At the most, one can devise a strategy for FY 2013 in March 2012 based on direct tax changes that are announced on February 28, 2012, during the Budget speech
~
Source : ET
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