Take Control of Your Finances This Pandemic

The unprecedented Covid-19 pandemic has taken the world by storm, with the lockdown continuing in many countries including our own. And this has led to economic distress caused by business losses, job depletion, layoffs and pay-cuts on one hand, and rising expenses and inflation on the other. As the economic stress deepens, people are risking their lives to get back to work as money is crucial for survival.

While these are tough times, one of the most important lessons to have come out of this crisis is the need to properly plan and manage one’s personal finances towards building a secure future.

Here are a few pointers to help you take control of your finances during the pandemic:

Assessment of your current financial situation: Take account of all available sources of income – salaries, returns from investment/savings etc. Next, list assets and investments – ones that can be quickly liquidated, others that can be liquidated within a period of 1 – 3 months if the need arises, and ones that are more difficult to liquidate like property, bonds and funds with a lock-in period etc. Lastly, make a note of all your liabilities such as such as outstanding loans, mortgage payments etc.

Plan and actively manage your finances: Personal financial planning is of the utmost importance. Income, expenses, savings, investments and credit need to be aligned to the family’s short-term and long-term needs, wants and life goals. In a vacillating global economic environment, it is important to take advantage of the opportunities while preparing for any exigencies. Financial planning helps one stay in charge during both these situations. It is also important to actively manage, revisit and revise plans, and implement changes in tune with changing needs, wants and the overall economic scenario. Consider investing some part of your money in an SIP; these monthly investments are not heavy on the pocket and the family receives the benefit of rupee-cost averaging as well as tax benefits. 

Invest in Life Insurance and Health Insurance: Life is uncertain. The pandemic has not only proved this to the world, but also shown us how unpredictable life can be. Hence, ensuring financial security for the family is of top priority. Investment in a life insurance plan should be made towards ensuring adequate coverage for the family, i.e., an amount which would keep the family financially stable in case something were to happen to the bread winner. An insurance cover ensures that an individual does not have to dip into his or her savings to cover any expenses that arise on account of medical exigencies.

As a first step, look at investing in a term plan, which is a pure protection product. In this turbulent economic scenario, it is also wise to park a part of your money in plans providing guaranteed returns so as to fence it against market volatilities.

Health Insurance for the family is a must too, considering the increase in lifestyle-related diseases and rising healthcare costs. Good health being a basic necessity, these costs can neither be ignored nor negotiated. Hence, it is important to have satisfactory health cover for the entire family.  

Build an emergency fund before investing money: An emergency fund can help one stay afloat in times of financial crisis. Such a fund should be a minimum of 6 - 12 months of family income. Also, this fund should be quickly and easily available as cash, if and when required. Most importantly, the fund should be considered sacrosanct – available for use only in case of an emergency.

Avoid the debt trap: In an era of rising consumerism propelled by a mix of factors like better spending power, product innovations, inciting marketing gimmicks and easily available personal credit options and facilities, one can end up in a debt trap. This debt trap not only hurts financial planning but can become ruinous in times of economic crisis with interest mounting on unpaid dues and adding to the borrower’s liabilities.

Diversify investments: A basic tenet of successful investing is to diversify investments across different asset classes – equity, debt, gold, real estate etc. This helps not only to reduce risk but also to optimize returns. It is also essential to keep the investment duration and goals in mind when choosing financial instruments. For example, equities deliver results over the long term. Investing in them with a short-term view is not advisable as they are highly volatile and hence risky.

To sum it up, financial discipline and prudence is required to sail #FutureFearless through the ups and downs of life. This pandemic will depart in a while but if we are able to retain, imbibe and implement the financial learnings from this crisis, we would be ready for the next time adversity strikes us.

The author is Chief Marketing Officer, Ageas Federal Life Insurance.

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.