Thanks to the Coronavirus, the world economy is in a state of turmoil, leaving many people insecure about their jobs and finances. During these turbulent times, with financial anxiety increasing at an alarming level, it’s difficult to make rational choices about the best way to manage money. But avoiding money mistakes and making smart financial decisions are a must if you want your financial future to be secure.
How to overcome financial crisis at a personal level? Here, we have listed down a few dos and don’ts of managing your finance during this pandemic:
- Do: Pump up your emergency fund
- Do: Control your spending habits
- Do: Cancel non-essential subscriptions
- Do: Apply for RBI moratorium only if necessary
- Do: Take a loan to avoid immediate difficulties
- Do: Hold on to your current job
- Do: Try to earn extra cash
- Do: Check your insurance coverage
- Do: Make a plan to be future-ready
- Don’t: Panic sell your stocks
- Don’t: Going overboard with buying stocks
- Don’t: Withhold payments without intimating lenders or providers
You could be facing an actual emergency – a job loss or pay cut – with no or less income to pay down your bills. So, this is the time to get aggressive about beefing up your emergency fund. Financial experts recommend having three to six months’ worth of living expenses in your emergency fund. One way to pad up your emergency savings quickly is to repurpose forgone spending. If you are working from home, you can redirect the money you save on the commute, meals, dry cleaning, etc. towards your emergency fund. And since you are not indulging in any leisure activities (thanks to home quarantine) like movies, concerts, restaurant meals, etc., you can put this money toward your rainy-day fund.
If you are feeling insecure about your finances during this ongoing financial crisis, take a closer look at your expenses. Spend only on essential expenses and cut down your non-essential expenses to a bare minimum.
Your monthly bills have to be a priority. The rest can wait. Prioritise essential monthly bills like electricity, rent, insurance premiums, EMIs, etc.
Try to buy products in bulk. Look for a way to buy maximum items in minimum price.
The country-wide lockdown may have made Amazon Prime and Netflix seem like a necessity. But these are luxuries, and if you are not financially secure, you may not be able to afford them. Rather stick to free media platforms like YouTube, read books you already, and be satisfied with your regular DTH subscription for entertainment. These small steps can help you save during these uncertain times.
In an attempt to solve financial crisis, the Reserve Bank of India has asked all Indian banks to offer a moratorium period of 3 months on all EMI payments. You can request your bank to hold your EMI payments for the next 3 months until things improve financially for you. However, if you can afford to make those payments, don’t opt for a moratorium. A moratorium offers immediate relaxation but expands your loan tenure. Your outstanding balance also accrues interest when your EMIs are in deferment.
If you are a business, your cash flow might have been disrupted. But you have to pay your bills. Apply for relief packages that the government has announced for SMEs. The RBI has reduced the repo rate to ensure more liquidity, making the banks offer loans at lower interest rates.
If you are facing income disruptions with no pay or reduced pay, you can consider taking a short-term loan to cover your bills. Although taking a loan may be an easier option right now, consider it a last resort. You do not want to take on debt when you are not sure whether you will be able to repay it, considering your current situation with less or no chances of drastic revival.
If you have a job amidst this COVID-19 crisis, guard it with all your might. The current pandemic had led to wide-scale layoffs, and companies would throttle hiring to keep their operating costs low.
If you are unhappy with your job or your current position, do not consider switching. Hold on to it for the next few months and then make the switch.
Come up with ideas where you can earn extra. Consider selling off things you are no longer using, take up freelancing projects, or get a part-time job. The money you’ll earn from these activities may be small, but these small amounts can add up to something significant over time.
An insurance cover can help you prevent the crisis. Make sure you have adequate insurance cover, not just the bare minimum. This applies to all the insurance policies you have or plan to own – health, life, disability, etc.
The COVID-19 crisis has shown the fragile nature of our economic and healthcare systems. Note down all the struggles you are going through right now. Is your emergency fund enough? Do you have adequate insurance cover? Are you too much in debt? Is your job stable? Make a meticulous plan to cover these struggles.
It is difficult not to react to the recent stock market crashes, tempting you to sell your stocks. However, history tells us that markets have always recovered over time. If you make the financial mistake of selling your stocks now, you will lose the opportunity to participate in the market recovery. Panic-stricken selling of your stocks may lead to significant capital loss and unfulfilled financial goals.
Many investors jump in to buy stocks when the market crashes. It’s a good move if it’s done in a measured way. For fear of missing out, don’t make a financial mistake of investing haphazardly. Look at your financial situation to decide what sorts of risks you can take comfortably. Ensure you have enough stashed in your emergency corpus before investing big in stocks.
If you are not able to make your essential payments, you need to reach out to your lenders or providers and ask for help. The lenders may offer you a moratorium, which will allow you to defer your payments for a few months or until things get back on track. If you stop making payments without informing the lenders, you will be considered a defaulter, and that would leave a nasty mark on your credit report. A drop in your credit score will make it harder for you to borrow when this crisis ends.
Make the right money moves
The economic meltdown might have caught you off guard. What to do during crisis? Follow the dos and don’ts mentioned here, and you should be able to come through this pandemic with no lasting damage to your financial health.