COVID-19: How is it affecting your wallet?

Good health is worth more than a million dollars. There is no substitute for good health. These days of physical, emotional, social, and financial distress have given rise to uncertainty and doubt. Doing whatever little we can to safeguard ourselves from the mishaps around is the ultimate priority. Apart from being healthy, the other major concern at hand for most of us is to manage our financial health. Since a lot of people are out of jobs and have experienced pay-cuts, knowing what to do with your money is of utmost importance. Although there are no guaranteed solutions to the effects of the pandemic yet, a few calculated decisions can help us move towards an improved financial situation.

Revamping financial plans: The global impact of Covid-19 has forced us to re-evaluate our financial plans and budget. Unfortunately, for most of us, the focus has shifted from growth to survival mode. This calls for major changes in the ways that we put our money into use. The situation requires us to be responsible and stick to buying only necessities for the time being. Splurging on luxuries will put an added pressure to an already deflated budget. Avoid spending extra to stock up essentials for large periods of time. Not prioritizing your expenses will create an unnecessary strain on your budget. Although, do not cut spending on your Health and Life Insurance premiums. This is something that shouldn’t be compromised with.

Debt Management: Let’s consider this situation. To relieve the general public from the burden of repaying loans during the time of crisis, RBI has allowed an extended moratorium for debt payments. What is a moratorium? It acts like a grace period during which borrowers do not have to repay their outstanding loan amount till the grace period is over. It has been announced that this will not affect the credit scores of the borrowers as well. Sounds like a good bet, right? Here is the catch. If one opts for the moratorium, the increased duration does give them more time to arrange funds, but it will invite extra interest on the outstanding loan amount for the extended time period. This goes for credit card payments and unpaid EMIs as well. Paying a little amount of your bills today will help you avoid exorbitant expense dent in the future.

Liquidity: Liquidity is another aspect that requires attention. Keeping enough liquid funds is important for meeting day-to-day expenses. With little or no income generation, bills piling up and immediate expenses to be taken care of, most part of the public is going through a troubling liquidity crisis. Cutting down discretionary spending like that on restaurants and other luxuries can help in maintaining a desired liquidity level. One vital point to consider here is the investment decisions that an individual takes. During this time, it is advisable to go for short-term and easily liquid investing options. Liquid investments are those which get easily converted into cash. For instance, there are several liquid mutual fund options that are available for the purpose. The main advantage here is that these are very short term investments and the funds get processed within 24 hours of withdrawal. Liquid investments will allow you to earn some extra money and also take care of contingencies if need be.

Stay away from panic: We understand that there is a lot of unrest and uncertainty looming over our heads. But, it is vital to not lose our calm and make rational decisions. Health crisis triggers household financial crisis, which ultimately leads to large scale economic crisis. It is a chain reaction. We observed a record sell-off in mutual funds, depreciation in the wealth and share prices during this period. Resorting to panic selling would only monetise the losses but not give any substantial return in the process. It is being widely speculated that cost of term insurance premiums are likely to rise soon. Generally, term insurance plans are the least expensive and most efficient life insurance plans available in the market. A rise in premium on new plans might make it out of reach for a lot of people. In such a case, instead of getting a new plan, you can opt for a top-up plan along with your existing one. So, in case your basic plan runs out, you can activate the top up plan to avail its benefits. There is no restriction on the kind of claim that you make or the amount of cover that you can choose. It gives you better flexibility to choose and higher protection.

Smart and calculated decisions: This crisis has made a negative impact on everyone’s financial position, be it however small or big. In such a scenario, it is vital to take decisions that can support both- survival and sustainability. In this stuck-at-home situation which keeps spiralling out of control, it is crucial to know which financial product or service is viable for your requirements. We know that the stock market underwent a massive low triggered by mass selling of stocks. This led to a substantial fall in the prices of the shares. It is understood that once the market conditions are better, most of the stocks will regain better positions. Think of this like a shopping sale. Valuable stocks available at near half-prices which in the future might give high returns. If you have some surplus lying around, you can consider investing some in the stock market. Just ensure that you research and do a proper risk analysis before investing.

Looking at the brighter side, this crisis has sparked conversations about finance amongst the youth. They have actively started participating in financial matters and have realised its importance. Let’s take the Global Recession of 2009 as an example. Some of the most innovative and viable startup ideas were generated during that period. Agreed that the times are very uncertain and it seems difficult to get a grasp on a situation that is escalating this fast and at this level. But we have to remember that uncertainty is the root of all progress and growth. There are hopes of a better tomorrow if we take a few responsible decisions today.

Team Investoday