Contingency planning, taking heath insurance and avoiding unnecessary expenses is critical.
By Amarpal S. Chadha
Over the last few years, the concept of financial wellness has been gaining importance and with this Covid-19 pandemic, it has become even more relevant to be ready to deal with financial emergencies and cash flow issues. World over, financial wellness has become an essential part of the education curriculum for the younger generation across universities, teaching them how to manage their funds/student loans even before they step into the working life.
Financial wellness means to be fiscally (money-wise) healthy. It means that you know how to manage money and can establish short-term and long-term financial plans. It means to spend money smartly while securing your financial goals, commitments and have enough resources in case of uncertain times. Here’s what you can do in the coming days:
Know your investments
Having a good knowledge about your financial position is very important and it helps you define your goals. First, list your financial assets and maintain proper financial records. This will help in distinguishing funds for immediate use, should the need arise. Second, have a statement of your assets/liabilities prepared and categorise them in accordance with your financial goals. Third, classify your assets between liquid assets (banks accounts, mutual funds, etc.,) and capital assets (properties and fixed term investments).
Pay adequate attention to inevitable commitments such as bank loans and plans to meet them endlessly. List the details of insurance policies and coverage. Do you have a will? And does it rightfully serve the needs of your family? Keep nominee details updated. Keep your trusted family member or friend apprised about the financial records and policies.
Right decision at right time
The pandemic has brought along uncertainties and hence meeting short term goals and having liquid funds at disposal has become the priority. Moratorium has been announced on payment of loans for three months. However, since the interest on loan for this period will still be accrued and added to the outstanding balance, try to pay EMIs. With relaxation on timelines for payment of insurance premium, one should not only take advantage of paying premium on life/health insurance within the extended time but also claim the available tax benefits. Unnecessary expenses should move to the backburner and spending should be focussed on creation of assets which can help in times of distress. Purchasing health and life insurance is important now.
Have a contingency plan to ensure short-term liquidity. Make efforts to identify and pursue alternative means of regular income. Plan your expenses and loans based on your current income level.
To sum-up, financial wellness is important because we do not act rationally in times of distress. Hence, now is the time to focus on the reality knocking at the door.
The writer is tax partner & India Mobility Leader, EY. Inputs from Shanmuga Prasad, director, EY