The COVID-19 situation requires calm decisions to help you strengthen your household finances and get out of the crisis unscathed. We put together a number of suggestions to help you deal with different facets of your finances.
The global economy is in crisis. The Covid 19 pandemic has locked entire nations into lockdowns, destroyed value chains and weighed on household finances. “This is a crisis like no other,” said Kristalina Georgieva from the IMF. “We have seen the global economy come to a standstill. We are now in a recession. It is much worse than the global financial crisis of 2008-2009. “
Unemployment has risen to an unprecedented level worldwide. Your personal finances are not immune to the crisis. Therefore, intelligent money management is essential for survival at this time. Care must be exercised with the four pillars of your personal finances: liquidity, insurance, loans and investments.
The situation requires calm decisions to help you strengthen your household finances and get out of the crisis unscathed. We put together a number of suggestions to help you deal with different facets of the four pillars.
The advantages and disadvantages of liquidity management.
1.1 BUILD EMERGENCY RESERVES
You must always have 3-6 times your current monthly income in an emergency fund that you can access at short notice without penalty. You can use this fund in emergencies such as job loss or a health crisis. Do not use this fund for discretionary or lifestyle expenses like vacation, shopping or entertainment.
1.2 MAINTAIN CASH IN BANK & FDS
You don’t have to keep cash at home. The Indian banking system is robust and secure. Put your money in a high-yield savings account or a fixed deposit at a bank and keep the minimal amount of cash you need at home. Trade digitally as much as possible. Use UPI-based apps and online broadcasts.
1.3 SPLIT SAVINGS THROUGH TWO BANKS
Rely on banks with low NPAs and a good track record. You are currently the best choice. During a crisis, you want full access to your money. Divide your liquidity between you and your family members like your spouse between two banks in the event that a bank is temporarily put into a moratorium.
1.4 Be economical
Save money. Reduce discretionary costs. Concentrate on the essential expenses that are necessary for your survival, your diet, your safety and your health. It may take a while for the global economy to recover. Therefore spend carefully.
1.5 COMPLETE LIQUID ASSETS
Liquidate your assets and investments properly. Do this to achieve a goal, to meet urgent short-term cash needs, or to protect the investment from unrecoverable losses. Do you also know the tax effects of the liquidation and the liquidation costs such as penalties or exit charges.
Having health and life insurance is critical during a pandemic.
2.1 DO NOT MISS PREMIUMS
Continued coverage is critical to your family’s finances. Don’t skip rewards or cancel your policies. If you don’t have insurance now, it can destroy your family’s finances. Health insurance could cover your hospital costs, while life insurance covers your family if you die prematurely.
2.2 Insurance provided by the employer is not enough
Your group health insurance coverage provided by the employer will last as long as you have the job. It is also a one-size-fits-all directive and coverage may be low. Therefore, always have a policy that is independent of the retail market for you and your dependent family members. Make sure that this policy adequately covers most of your health risks.
2.3 Take your insurance provided by the employer with you
While you leave your job, you can convert your group health insurance provided by the company into individual retail insurance. Check with your employer and insurer, pay the premium based on the market price and enjoy continued coverage without waiting.
2.4 DO YOU HAVE INSURANCE? TOP IT UP
Improve your basic insurance by taking out super-recharge health insurance. This is an inexpensive way to get additional, large coverage, with your basic coverage acting as a deductible.
2.5 DO YOU HAVE DEPENDENTS? GET A TERM PLAN
Your financial dependents – parents, spouse, children – need protection from your untimely death. Make sure that you have a schedule with an insured sum that is 10 to 20 times your current annual income. This covers your family’s income needs after your death.
There are two general problems: managing existing investments and new investments.
3.1 Avoid panic
Decisions made by panic can aggravate your ongoing losses. Let yourself be guided by information and clear thinking, be it a liquidation or a new investment. Do you have a valid reason to liquidate your investment? Buy new investments if they match your financial goals. For long-term investments, it may be advisable to tolerate continued volatility in order to achieve higher returns later. For example, investors in index funds with a horizon of five years or more can achieve high returns.
3.2 INVEST IN A PLAN
Every investment you own must be dedicated to a specific goal. Align all existing or new investments so that the defined goals are defined with the required money, the remaining time, the required monthly contributions and the return expectations. For example, to save Rs. 3.5 crore in 30 years you can invest Rs. 10,000 in a monthly equity investment fund SIP with an expected return of 12% per year. The objective helps to find the suitable investment instrument, to manage liquidity and to set expectations for optimal returns. Investments are also made to save tax in accordance with Section 80; However, this goal must be of secondary importance.
3.3 FIND THE RIGHT MIX OF INVESTMENT
Your assets – deposits, stocks, mutual funds, bonds, gold, real estate, etc. – must be selected in a ratio that corresponds to your life goals, return expectations, appetite for risk, income and liquidity needs. For example, bank deposits are better for saving in emergencies than equity funds.
3.4 ASSESS YOUR CURRENT INVESTMENT
The pandemic has provided valuable insights into financial priorities and planning. So take an inventory of your portfolio today. Investments that are no longer aligned with your goals can be cut. For example, some debt mutual funds are volatile, so it is better to get a safe return with capital security from a deposit with a large bank. Similarly, foundation plans can generate low returns, and PPF is illiquid due to disbursement restrictions.
3.5 Continue monthly investments and SIPS
If you invest in a clear plan, you will continue to make your monthly contributions to SIPs, PPFs or any of the systems you choose if you have a regular income. If your income is stressed, pause your contributions. Only liquidate the investment when you need the money. Once you have income stability, keep investing.
3.6 GO DIGITAL WITH GOLD
Gold is preferred in every economic crisis because it moves counter-cyclically. However, as an investor, you can also invest in dematerialized gold to avoid fees, GST, and fee collection concerns. Your options are government gold bonds, gold ETFs, gold mutual funds and digital gold.
Don’t let your debt get out of control.
4.1 DO YOU NEED A FRESH LOAN? HAVE A REPAYMENT PLAN
Always have a full repayment schedule. Don’t take more than you can chew. Make sure that all of your EMIs do not make up more than 30-40% of your monthly disposable income.
4.2 DO NOT Borrow Without Compare
Search online marketplaces for the lowest interest rates and pre-approved loans. Some loans are cheaper than others. For example, a top-up loan or a gold loan can have lower interest rates than a personal loan, which in turn costs less than credit card debt.
4.3 CAUTION WITH CREDIT CARD FEES
The credit card interest can be between 36 and 42% per year. Don’t let your fees go up. Pay them back on time and as a priority to continue enjoying interest-free periods. Minimum payments keep you in debt longer.
4.4 USE THE MORATORIUM IF YOU HAVE TO
Lenders grant a three-month moratorium on loan payments until May 31, 2020. Use this option if you have liquidity problems. However, be aware of the interest accruing during the deferral. If you have a regular income, you will continue to pay your EMIs because you have nothing to gain from the deferral.
4.5 BOUNCE BACK FROM THE MORATORIUM
If you use the moratorium and postpone payments for 2-3 months, you may be able to add a lot more EMIs to your loan. To recover from the additional interest, pay the number of EMIs you’ve deferred in advance.
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