Return to site

These are such unusual and uncertain times. Never even in our nightmares did we ever imagine we would live through a pandemic! But yet here we are living in totally different circumstances for the past 5 to 6 months. How does one manage finances in such uncertain times?

The Indian economy has taken a big hit due to the lockdown. This has led to many companies winding up their businesses, cutting salaries, snipping overheads, running at much lesser capacity and even reducing their workforce drastically. This has been a double whammy for some. The fear of a highly contagious disease is by itself a new frightening reality to adjust to, and then the fear of job loss.

What does one do at such times? First and foremost, it is extremely important to have a positive mindset. We know it is easier said than done but, being resilient is the only way you can plan with a clear mind. Despair, ego and disillusionment never lead to good solutions.

So here are a few ideas to keep in mind in case one is worried about an imminent job loss or pay cut.

Step 1. Take stock of all assets (gold, financial assets etc.), liabilities (school fees, EMIs, rent, etc.), expenses (monthly household expenses, transport, etc.). and finally, all sources of income (interest earned, rental income, etc.). Also check if you have adequate insurance. Do this exercise on a paper or on the computer. Don’t do a mental assessment.

Step 2. Make a rough note of expenses of the past few months. Being largely at home this would be the time we would have realised the difference between needs and wants. Classify them like say food, rental, etc. under needs. Eating out or going for a movie or holiday is a want. Covid times has clearly demarcated this for us so this will hardly take any time.

Step 3. Divide these into absolute musts that cannot be avoided like school fees, rentals, EMIs, etc.

Step 4. Cut out all those that can be avoided or postponed. Say something like even if you were planning to purchase a phone or a new pair of glasses. If possible, put these on hold for a while.

Step 5. In case you have loans there are 2 things one can do. You can approach the financial institution and request them to restructure the loan by either reducing the monthly payout or interest rate, for a while. These are the best times to give this a try as many financial institutions are being sensitive to the situation and are also keen to help their customers. While they are offering a moratorium on loans, do not avail of it unless you are really desperate as it is only a postponement of the monthly payment and not a waiver. Second, liquidate some assets in the emergency fund and if you need more then the small saving scheme or mutual funds and first pay off the high interest loans, like say credit card bills, personal loans, etc.

Step 6. Take this time to set a few things straight. Make a good resume, network a bit (via emails and phone calls). Upskill yourself by doing some courses (there are many free ones available online) which, besides helping you add to your skills will also show the prospective employer that you have been proactive in improving. Ensure daily exercise to keep your mind and body healthy and positive. Find a part time job if necessary, but do not rush into taking up a job.

Step 7. Speak with the family about the financial situation. This helps in many ways. Firstly, it will help them understand and support you through this restructuring process. Secondly, you will have emotional support from the ones you need it most from. And lastly, in case of desperate circumstance maybe someone will be able to lend a helping hand.

You will be surprised how much easier it is to make a start from here without feeling disheartened

A few points to making a healthy financial plan:

Now is a good time to also start one’s financial journey in the right way.

  1. Have an Emergency fund (6 to 8 months of monthly expenses in a liquid asset like an FD). If everyone has adequate emergency funds, they will not rush into taking wrong decisions.
  2. Next, ensure you have adequate health Insurance for the entire family and life insurance if you have dependents. For those who have company insurance alone, it is highly recommended to take a personal one too. In case of a job loss one will not have a cover. Insurance companies are also offering Covid insurance so better to check if you need one in cases where people are in frontline jobs, open to risk due to some other factor, etc
  3. Set goals: Make Write down all your goals for the next few years like say one has a 10-year-old child, you will need to keep money for his or her college fee when he or she turns 18. Calculate the cost for each goal keeping inflation in mind (while we see headline inflation as 6 to 7 % the real inflation in say education is above 10%. Similarly, when calculating insurance keep in mind that healthcare costs are rising much more than 7%.
  4. Duration: Divide your goals into short, medium and long term and then buy the correct product fit.
  5. If you own any kind of asset, however small, ensure you have a Will in place. Also do check if you have the appropriate Nominee assigned to each asset and people in your family know where you have invested and what kind of liabilities you have.

Remember the 2 main aspects of personal finance: Inflation (erodes value of money) and Power of Compounding (the best way to create wealth). While making investment decisions these are the other important aspects to keep in mind besides the usual risk, returns and saving tax.

While these are very broad suggestions, the very first aspect to remember is there are many others going through similar issues and in some cases, maybe worse. The State and Central governments are all working hard to keep things under control and help people too. So this too shall pass.