It’s time for us to stop focusing on the fear and anxiety around Covid-19 and start answering practical questions about all the changes it has brought about in our daily lives. “We will all have to go through the isolation and months of working from home. And, maybe sooner or later, work with lower wages or even with a no paycheck scenario. So everyone has to change their financial strategies to survive. the new environment, ”says Pankaj Mathpal, Certified Financial Planner based in Mumbai. “This means closely monitoring your cash flow (cash inflows and outflows) and modifying it as the situation arises.”
In short, if you already have a monthly household budget, you will need to tweak it. If not, it’s time you made one.
The best and the worst of times: The first step is to assess your current financial situation. Know your income, expenses, assets, liabilities, insurance coverage and more. Chartered Accountant Ashok Shah, Founding Partner of NA Shah Associates, says, “When reassessing your budget, you need to think about various scenarios – worst, normal, and best – and your response to them. , in case they happen. “
The worst-case scenario could be a job loss or a dramatic 20 to 30 percent pay cut. A normal scenario is a scenario where things usually don’t change much financially or change little. At best, your income remains protected, but foreclosure and working from home have put more money in your pocket. Shah said, “Plan your cash flow in each scenario. Check how many months you can survive in each. If there is a disease next month, you cannot afford to cure it after three years. You will have to spend on it. Plan an asset disposal strategy as the next step in case your scenario changes, prevents a discount sale. “
In short, it is time to build some mental models, to reassess, to reallocate expenses, to reassess the realization of assets and contingencies.
Expenses: Whatever scenario you find yourself in, now is the time to cut your costs even further. Many expenses were automatically reduced, such as going to the movies, eating out and shopping for clothes, thanks to the lockdown. Mathpal says, “Make sure you cut back on variable expenses, even when you’re at home. People who already have Amazon Prime are subscribing to Netflix and buying Youtube movies. It’s an extra expense you incur at the time. House.” Remember that expenses are of two types, fixed and variable. The variable category can be divided into two parts – the necessary and the voluntary. Variable expenses needed are those you can’t live without, such as groceries, utility bills, cell phone bills, and other general utilities. The cost of entertainment, even online, is something you can reduce. Today you have several free resources.
Liquidity: Once you’ve taken the above step the next step is to see how much money you have on hand.
Mathpal says, “The most important thing you need in these uncertain times is liquidity.” Ideally, if you have six months of an emergency fund, all the better for you. Those who have not built one should immediately park the transport costs they saved on this amount. It won’t be much, but it’s a start. Remember, this may be the most important thing you can do at this point. “
Gaurav Rastogi, Managing Director of Kuvera.in, said: “If you don’t have emergency funds in place, then divert any amount you can save to liquid funds. The goal is to have enough emergency funds to stretch until the lull lasts, about six months minimum according to experts.
Loans: Banks grant three-month EMI deferrals on many loans. If you can afford it, you better avoid a moratorium. But, if you have no money, you have no option, you will have to take it. Another way to save money is to reduce interest charges. Suppose you took out a personal loan last November at a higher rate and now personal loan rates have gone down. You can switch to a lender offering a cheaper loan. Of course, you need to make sure that the savings are substantial and that the new loan does not come with huge processing costs.
Investments: If you’ve suffered a pay cut, you may not be able to continue investing the same amount. But that doesn’t mean you should stop investing, especially if you have your emergency fund in place. Rastogi says, “When you have a foreclosure like this, assuming it gets resolved within the next three to six months, for many people spending would have already gone down 30-40% from month to month. The other. Overall, we don’t expect wages to drop 10-15% in the next six months for the most part. Overall, all economists say there will be a huge surplus in private savings. over the next six months, including in India. “This means that your expenses may have fallen more than your income. Rastogi says,” When it comes to budgeting, you need to weigh the likelihood that your income will decrease over the course of the year. the next six months. If your salary is not reduced and your expenses have decreased, then you have excess savings that you should invest. low risk investments. ”
Regarding risk mitigation, Mathpal says, “Even if your employer provides medical insurance, buy personal insurance for yourself and your family as soon as possible. Job loss is a possibility for many in today’s economy. “
The truth is you will have to work on your new budget; these are just a few guidelines. Make every rupee count, save every penny you can, put it to good use on medical insurance instead of Netflix. This too should pass. Shah said: “Live short today so that you can survive long later.”