Taking care of our health and exercising caution to prevent the spread of the Covid19 virus has become paramount. However, it’s also important we make necessary preparations and readjustments when it comes to our personal finances.
We are living in unusual times. The coronavirus pandemic has resulted in unprecedented city lock-downs, quarantines, sealed international borders, and volatile markets. Taking care of our health and exercising caution to prevent the spread of the Covid-19 virus has become paramount. However, it’s also important we make necessary preparations and readjustments when it comes to our personal finances so that we are on a stronger footing to take on any difficult situation. Here are some points in this regard you might find helpful.
1. Enhance your emergency fund
The coronavirus pandemic has already impacted the global economy, and there could be long-term repercussions of the recent volatility. In such a scenario, it makes sense to increase your emergency fund. Ideally, your emergency fund should be worth at least 6 months of your expenses, but you may want to increase it further in these times to be in line with your requirements and responsibilities. Your emergency fund will come to your rescue if there’s any loss of income in the near future arising out of this pandemic. Also, there’s some confusion about health insurance policies covering pandemic treatment. If your insurer refuses to cover a coronavirus-related treatment as it has now been declared a pandemic, your emergency fund will be something to fall back on. Lastly, having in place an adequate contingency fund will minimise your dependence on borrowed funds during a difficult situation.
2. Go digital to repay loan EMIs
If you’re servicing a loan like a home loan, personal loan or car loan, and pay your EMIs (Equated Monthly Installments) in an offline mode, you may want to change it quickly to an online mode. This is because you might be unable to pay your EMIs if your bank shuts down its offices due to the outbreak which can result in late fees or loan default. The best option is to set an auto-debit mandate of EMIs from your savings or current account to avoid repayment delay or default. This is in line with RBI governor Shaktikanta Das requesting banks to boost digital transactions in the wake of the Covid19 crisis.
If you expect difficulty in repayment of EMIs, you may contact your bank immediately to request an extension in the loan tenure so that the EMI level may come down.
3. Don’t discontinue your long-term investments in a huff
Markets are already experiencing volatile phases due to the coronavirus outbreak. However, you’ll be well-advised not to take panic-stricken investment decisions. You may want to continue with your mutual fund SIPs to meet your long-term financial goals. SIPs allow investors the benefit of rupee cost averaging to absorb the shocks of market volatility and fetch desired returns. In fact, a falling market could also mean you buying more mutual fund units at a discounted price if you continue with your SIPs which could garner higher returns when the markets bounce back. However, the longer you stay invested, the better are your chances to get desired returns.
4. Review health policy
Until coronavirus was not declared a pandemic by the World Health Organisation, its treatment costs involving hospitalisation were covered under most health insurance policies. But ever since the pandemic announcement, policies that exclude pandemic coverage may not settle claims arising from such cases. That being said, the IRDAI, according to media reports, has urged health insurance companies to extend coverage to Covid19 hospitalisation cases in their policies. As such, ensure you go through your health insurance policy document to get complete clarity on its list of coverage and exclusions and also check for any latest intimation from your insurer.
5. Review your budget and daily expenses
You may also want to limit your non-essential expenses under such a situation. Adequate savings would come in handy if the situation worsens in near future. Controlling big-ticket discretionary spends would also help you in boosting your emergency fund. It’s time to review your budget and list down shopping requirements based on priority.
6. Review your investments
It’s also an opportune time to take stock of your investments and take pragmatic decisions. You may want to rebalance your portfolio if it’s skewed excessively towards equity or debt assets. You can also choose to slightly increase your gold investments to counter the impact of market volatility. Risk-averse investors can also choose to increase their investments in relatively risk-free instruments like PPF and NPS. However, ensure your investment decisions are strictly based on your financial goals, risk appetite and liquidity requirements. When in doubt, consult your financial advisor and don’t pay heed to rumours.
In conclusion, a crisis like this demands calm nerves. So, avoid panic and ensure you and your family members follow the health instructions given out by the authorities, especially those concerning hygiene and social distancing. Similarly, keep calm and make necessary preparations to bolster your personal finances. The more disciplined you are, the better it is for your health and wealth.
(The author is CEO, BankBazaar.com)