Financial plans are being redrawn with newer safer strategies being adopted. To help avoid unwanted financial stress, here are 4 financial planning mistakes you should avoid in a post-Covid world.
Living in a Covid-induced lockdown world is emerging as a challenge for virtually everyone. Be it a business owner fighting liquidity crunch or a salaried individual worried about job loss or salary cuts, the times are uncertain and challenging.
On the other hand, financial plans are being redrawn with newer safer strategies being adopted. To help avoid unwanted financial stress, here are 4 financial planning mistakes you should avoid in a post-Covid world.
Mistake 1: Taking emotional decisions
It is human nature to panic when the emergency button is pressed. The fact, however, is panic and emotions don’t mix well with financial planning. Monetary decisions must be made on fundamentals with objectivity.
For example, the Covid pandemic has significantly weakened India’s growth outlook. Consequently, stock markets have registered negative growth in the last 2-3 months. As an investor, watching your investments taking a hit can be tough. But do not act on an impulse and exit the markets. This would not be an objective decision. Know that the long-term growth story of India retains intact.
Volatility is the nature of equity investments so continue paying your mutual fund SIPs looking at the bigger picture. Remember why you are investing and focus on your investment goal. Also, any important structural changes like changing your debt-equity investment ratio should only be considered if your life circumstances have changed immensely like a job loss etc.
Mistake 2: Believing it’s too late to have an emergency corpus
So, you didn’t have an emergency corpus in place and you had a tough ride economically during the Covid lockdown phase. Worry not. Use the hard times as a lesson and start building your emergency corpus right away. It is never too late to have an emergency fund in place. Growing uncertainty of Covid-19 and no imminent vaccination in sight means the economic uncertainty can be a long haul.
Start creating your emergency corpus even if you never had one. To begin with, the money you would have spent on going out for movies, meals, social gatherings, etc can be rerouted to this emergency corpus.
Mistake 3: Opting for blanket loan moratorium
With the government extending the 3-month loan moratorium to 6 months, the attraction to save money by opting for an EMI moratorium may be huge. It should actually be an option only if you are facing an extreme situation like a job loss and strapped for cash. Financially, the loan moratorium can be a burden in the long term as you continue to pay interests on the loan, increasing your final outgo.
If you are a salaried individual and fortunate enough to receive a monthly salary, continue with the loan EMIs. If you are not in a position to pay or are facing job uncertainty, consider squaring off some investments to pay off your loans to be debt free.
Mistake 4: Exploring EPF corpus withdrawal
Employees’ Provident Fund (EPF) withdrawals have historically been available for essential needs like medical treatment, children’s marriage, or home purchase. The Covid crisis has meant the government softening norms allowing withdrawals from EPF to tide over temporary liquidity issues. But before exploring the option, know that a premature EPF withdrawal can deeply impact your retirement takeaway due to future compounding effect.
If you are facing liquidity crunch, an EPF withdrawal should be your last priority, as retirement funds are best left untouched until your sunset years. Explore other options like selling some non-performing investments to help address your instant liquidity needs.
The world is facing an unprecedented time both medically and economically. It may take quite some time for the world around us to stabilize and adjust to the new normal. Until then, strap in and use some smart financial moves to tide over the current times.
(By Nisary M, Founder, HerMoneyTalks)