The COVID-19 crisis is so bad that it is being compared to the great depression of 1929. It has led to widespread economic uncertainty and has hit job security, income and stock prices the world over. During such a time, people tend to react out of fear and are likely to commit some mistakes as far as their money is concerned. Acting out of fear leads to wrong decisions and it is no different when it comes to managing your money. Now, more than ever, it is important to make money decisions calmly and not act in haste. We take a look at those and why you should be careful.
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1. Postponing EMI payments: One of the things one might want to do is to postpone payments for the extended moratorium period. However, EMIs can only be postponed and there is no waiver. Postponing EMIs would mean that you have to pay more interest to the bank later and the interest can be a substantial amount in case of a large loan like a home loan. So, if you can, the best bet is to pay your EMIs on time.
2. Stop paying insurance premiums: You now have a longer grace period that you can take advantage of, but it is very important to pay your premiums on time so that the continuity of policies is not hampered. If a policy lapses, you are exposed to a huge risk. It could also mean that you have to pay a higher premium when you buy a policy in the future and lose some benefits.
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3. Taking up more debt: Taking a loan to get out of this crisis should be the last resort even if the loan terms sound very lucrative. Personal loans may be easily available, but there is the obligation to pay it back. Also, they come with high interest rates. Even a personal loan where you have to start paying the EMIs after certain period would have the cost built into it. Resort to debt only if it is urgent, otherwise stay away from high cost loans.
4. Spending money you do not have: It is never a good idea to spend money that you do not have, but many tend to do it most of the time. One of the fallouts of the pandemic is that the avenues to spend have almost dried up. So this should come as a lesson in cutting down on unnecessary expenses. Even when the lockdown ends, make it a point to reduce expenses that are not really needed.
5. Selling your equity investments: Since the markets have tanked, stocks and equity mutual funds have lost value. But this is not a good time to sell stocks, redeem your mutual funds or stop your SIPs. Certain changes may be called for, but panic selling of equity assets can turn out to be counterproductive. History has shown that every downturn is followed by a recovery. Unless you need the cash to survive, it is very important that you hold on to your equity investments.
6. Taking advice from family and friends: They may be well meaning, but you should never turn to them for money advice, especially during times such as this. A qualified financial advisor can help you with the right advice during such times and help you make prudent money decisions.
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