15 May Managing personal finances during COVID-19
COVID-19 has turned the whole world on its head in just three months. On January 5, the World Health Organization had first published the disease outbreak news; by March, the world had witnessed shut downs from Melbourne to Mumbai while slowly cantering into a forced recession. According to the IMF, the contraction in the global economy due to COVID-19 is going to be worse than the 2008-2009 financial crisis1. The IMF has also slashed the growth projection of the Indian economy for this financial year from 5.8% (projected in January) to 1.9%2.
The current situation around us has necessitated the need to focus on efficiently managing your personal finances, because emergencies can be highly stressful and calamitous to you and your family. Maintaining a proper financial health can give you a necessary cushion which you might require at the time of an exigency.
Managing personal finance during financial crisis can be effectively done by:
Review your goals, redefine your budget: The first step is to go to the drawing board and note down all your goals, the next step is to cut down discretionary spending or expenses which can be considered later like the next car you were planning to buy or the next vacation you were thinking of taking. This is the perfect time to consider refining your budget as much as possible in order to reduce expenses. It’s good to have a plan for what essential supplies you will need and what you can avoid to keep your spending in check. A little bit of frugality goes a long way during a crisis.
Loans can help you sail through the lean period: Immediate access to various channels of credit gives flexibility at the time of financial needs especially if you are running low on emergency funds. But it is suggested to evaluate your need before taking any credit. It will also help you understand the repayment time frame so that you can plan better.
Pay your EMIs on time: RBI may have offered a moratorium to ease the immediate financial burden for those caught in the throes of the recession and are facing job loss or salary cuts. However, if you can, continue paying your EMIs on time, and do not opt for the moratorium. It is natural to be tempted to not pay EMIs since it feels as if you may be ‘saving money’ right now. But the cost of not paying EMIs while you still can will be higher during the end of your loan period.
Don’t press the panic button on your investments: You should not stop the SIP or exit your investments unless it is an emergency. Continuing your Mutual Fund SIPs will help you add more units when markets are down, bringing down your average cost of acquisition. Also, panic selling of investments doesn’t help when the markets are down. If in urgent need of cash, you can withdraw partial units as per your need. In case of a job loss, you can also pause your SIP and restart it at a later date.
Insure your health, and your finances: This is a good time to opt for a health plan for you and your family in case you do not have the same. It is a good idea to purchase a COVID-19 specific cover plan. Many insurance players have introduced such insurance policies offering sum insured starting from INR 25,000 and premium as low as INR 150. This prepares you and your family for any unforeseen circumstances that might add to your financial burden.
Hope for the best, prepare for the worst
So far, social distancing, herd immunity and going overboard with hygiene is the key to beating the pandemic. Similarly, beating the global recession involves following healthy financial practices. Unexpected as it may be, this economic downturn can be weathered by ensuring one is financially immune and ready.
And pandemic or not, crisis or not, it is always a good idea to make sure your finances are resilient even otherwise.