Demonetisation: This crisis, temporary as it may be, has vital long term financial and home management lessons for you.
The drastic decision to demonetise or more accurately, replace of old Rs 500/1000 currency notes to check black money has sparked off an intense debate in the country. Irrespective of which side you are on, we are pretty sure you are facing a liquidity crunch and are worried about your money and cash for daily expenses. In fact, this crisis, temporary as it may be, has vital long term financial and home management lessons for you. Learning from the current short-term crisis will keep you financially safe through most crises even in the long term. Here’s what you must always watch out for:
1) Be ‘financially swachh’ – you are surely aware of the moral argument for being financially clean. We will not get into that. What this discontinuation of old notes and recent global events are telling us is that the days of parking currency either in mattresses or in slush banks abroad are nearing their end. Yes, the super-rich will still exploit holding companies, trusts and other complicated structures, but, even those are not completely safe anymore. Recent leaks like Panama papers reveal that third party whistle blowers can take the lid off anytime. Swachh Bharat also extends to your finances, not just to the streets.
You may not be rich or super rich and may be a professional or even a salaried person pursuing some other interest on the side or getting rent from a second property, but, even your accounts have to be clean. Computerisation is linking everything and even your Facebook page can tell interesting stories to the sleuth in income tax department if he wants to go there. Go clean, pay your taxes. Clean your books. That will ensure you don’t lose from sweeping local or global decisions that seek to check unaccounted money. People with clean accounts haven’t lost a rupee in the demonetisation decision.
2) Get medical insurance, now! – you can deal with quite a lot. But, the most difficult thing to deal with are medical emergencies with no cash or card or insurance. If there is one thing that you should do immediately is get medical insurance. This insurance is quite literally, a life saver.
3) Be KYC compliant & get yourself verified in whatever other way needed – yes, the process is irritating and not fully sorted yet. We know banks & mutual funds can have their own requirements. But, it will always pay to let your financial intermediary clearly know who you are. And, this is not just about the immediate fallout of demonetisation. It can even apply to any out-of-the-usual transactions you may do now & then for some pressing needs. And, when short-term crises come, you won’t be running around getting yourself verified. You will be ready to solve the immediate problem.
4) Go digital, use plastic – it is convenient, you don’t have to manage cash and with the way things are right now, you get many other benefits such as cash backs and reward points. Many digitally savvy people are facing less of a problem in these pressing times post demonetisation because they use an online wallet to pay taxi fare, pay by credit or debit card for their grocery or transfer money via internet banking. Even cheque books will gradually become defunct. Pay rent to your landlord via NEFT or other internet banking facility. Same with utility bills like electricity and water. If you are afraid of misuse or hacking of your main account, set up a new account or a credit card with low credit limit and keep limited money in your mobile wallet. That will restrict your loss in case of any mishap or cyber hacking.
5) Be prepared, always, with financial documentation – are you scrambling right now to locate your Aadhaar or PAN card? Are you running around for photocopies of critical documents? It requires just a bit of discipline, but, maintain a separate folder with all critical documents and perhaps a photocopy of each document. Keep scans at a secure place as a backup, in case you lose documents. Use digital lockers to store important documents. You don’t want to be running around for a replacement PAN when you have to desperately withdraw money from the bank, isn’t it?
6) Diversify, in ways more than one – we live in volatile times. Plus, there is always the chance of natural disasters. For instance, many of us would have stored some money, perhaps in Rs. 500 notes, for financial emergencies. In hindsight, perhaps, it would have been smart to maybe also save a few (not too many, we don’t want to hoard) lower denomination notes for the kind of situation we are in today. The same applies to larger financial decisions. Consult a financial advisor, spread your money across equity, debt, small/post office savings, real estate and gold or other alternate assets if you can afford to and can take the risk. But remember the first lesson, do it cleanly. PM Modi has now clearly warned that benami property holders or people holding wealth beyond known sources of income would be questioned. Diversification can also extend to more than one family member having a bank account, preferably in a different bank. Think of ways that will best work for you.
7) Keep reasonable stock of essentials, daily needs goods – yes, it is tough with essentials, they go bad or get outdated. But, disruptions can happen anytime. It can be a transport strike or a big upheaval like the one that has just happened. Wild rumours can take a commodity off the shop shelfs in no time. Think of what is most critical in your household, think of alternatives to that essential commodity – it is importantly to mentally think this out so that you don’t scramble around later. For instance, for households with young kids, it may make sense to think of alternatives to milk if you suspect any transport or any other strike. Similarly, ensure you are not down to the bottom for daily food items – at least the ones that you can store like rice, flour and pulses. Make your own list. Don’t panic each time something happens, things mostly go smoothly. But, it can help to have a buffer of 2 -3 days for unforeseen supply disruptions.