The aftermath of COVID-19 lockdown – Here is how you can manage your finances and debts

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Published: June 3, 2020 5:37 PM

Even though managing finances has been a challenge for many people during the lockdown due to lost livelihoods or shrinking income, industry experts say the challenges of managing finances and debts after the lockdown is lifted continues to remain more or less the same. 

unlock 1, long term investments, stock market, gold prices, Nifty, Sensex, systematic investment plan, mf sip, mutual funds, IPO, National Savings Certificates, NTPC, Coronavirus Outbreak, Novel Coronavirus COVID-19, Coronavirus safety tips, basics of financial planning, emergency fund, insurance, health insurance, life insurance, equities, equity mutual fund, equity MF, lockdownHere is how you could go about your financial planning in a COVID 19 affected world;

Covid-19 saw falling revenues across industries because of which there have been thousands of job losses along with drying up of contractual and freelance work. The crisis has pushed the global economy towards contraction. According to data from the Centre for Monitoring Indian Economy (CMIE), over 27 million people in their 20s have lost their job in the month of April.

Even though managing finances has been a challenge for many people during the lockdown due to lost livelihoods or shrinking income, industry experts say the challenges of managing finances and debts after the lockdown is lifted continues to remain more or less the same.

For instance, if a 2-income family suddenly loses one source of income; or if one had to take a pay cut due to the crisis or have been experiencing an absolute lack of freelance work, individuals need to adopt better financial management practices to cope.

Dr. Vivek Bindra, Founder, and CEO, Bada Business says, “Even if you have so far not been financially impacted, it is important to plan prudently for the future. Handling of debt can also be tricky in such circumstances, especially if you are already eating up into your savings.” Bada Business Pvt. Ltd. is a platform that provides knowledge of different business strategies, and frameworks.

Here is how you could go about your financial planning in a COVID 19 affected world;

1. Comprehensively assessing your finances
Have a concrete idea of how much you are spending on which heads, and whether all these expenses are absolutely necessary or avoidable. Now is the time to clearly prepare a financial account of all your expenditures. Delineate the heads into essential, avoidable, and unnecessary. The lockdown has also helped people save on some of their expenses such as daily travel, fuel costs, discretionary spending, and conspicuous consumption. Hence, take into account all your savings as well and conduct an analysis of your financial state.

2. Cut down on non-essential expenditure
Start by cutting on the unnecessary expenditures and trim down your avoidable expenses as well. Bindra of Bada Business says, “If you have multiple subscriptions of e-magazines, online newspapers, OTT platforms, video streaming services, set-top box subscriptions, and other such overlapping expenditure, prune them down immediately.” He adds, “Additionally if you have had memberships running in community clubs, hotels, restaurants or gyms, avoid renewing them. These expenditures might appear to be low individually, but they can amount to a significant aggregate when taken together.” Find all avenues where you can save money. Any saving is a good saving. Put off any big-ticket expenditures or buying decisions that were on your plan.

3. Seek your lender’s help in pruning your liabilities
In March, the RBI asked all lending institutions including banks and housing finance companies (HFC) to give a 3-month moratorium on term loans to their borrowers. After which several banks have offered the facility to borrowers. However, long term planning of adjusting your loan repayment liabilities is important during this time. Experts suggest, if your cash flow has decreased, it is better to seek your lender’s help in reducing the EMI amount. You may also consider the option of merging two existing loans. Banks and lenders have also devised interesting initiatives and policies to help make it easy for people to meet their liabilities. You can get in touch with your relationship manager and seek their advice.

4. Review your investments
Take a look at where your money is invested and whether you need to withdraw some of it to increase the availability of liquid cash at hand. Bindra of Bada Business says, “One’s investment calls must be strictly based on one’s financial goals and liquidity requirements, rather than just the market sentiment. In the current crisis, investments in equity, mutual funds, etc. are facing losses. If one wants to shift these assets to more risk-averse instruments, he/she may consider liquidating them or investing in gold or putting them into instruments such as PPF and Fixed Deposits which are relatively risk-free.” However, if your income flow has remained unaffected, you should continue your long-term financial investments.

5. Create a contingency fund
Experts say the time period ahead is likely to stay volatile for the foreseeable future. So, even if you have not been affected by the financial crisis so far, it is important to prepare for it. Create a contingency fund that can help you meet your basic requirements in case a financial emergency strikes. You could do so by liquidating some Fixed Deposits or other investments that you think are worth liquidating. Emergency funds come to rescue if there’s any loss of income in the near future arising out of an emergency situation.

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