Investments & Financial Planning

COVID Times: Boost Your Financial Immunity

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The COVID-19 pandemic cases are increasing globally, and the number of confirmed cases in India has crossed more than 1.5 million. COVID-19, which started as a health concern, with continued lock-downs and social distancing, normal business activity has taken a back seat leading to economic slowdown. The International Monetary Fund (“IMF”) in its latest report projects the global and Indian economy to contract by 4.9% and 4.5% respectively in 2020.

The pandemic has made a difference in each and every one’s life. Positive changes include – individuals becoming more health conscious, more quality time with family and children, slowing down from their busy life schedule and taking life easy, becoming more technology oriented. Negative changes include heightened fear on health, job safety, and financial stability.

Now let’s look at real life cases of how the pandemic has affected the financial position of individuals

  • Mr Kumar is a website designer and digital marketing professional in Mysore. His monthly income more than doubled over the last three months.
  • Mr Bharath, an IT professional in Bangalore – had to take a pay cut of 20%
  • Mr Ram, who owns a fast food restaurant in Bangalore, had closed his business for three months. But he still managed to pay the rent and staff expenses from his personal savings
  • Mr Chandan, who was working as a travel consultant, has lost his job and is searching for new job.

Loan moratorium is helping individuals manage their cash flows; however the financial situation could worsen after the moratorium period ends. Many have lost their jobs or taken a pay cut in this on-going pandemic, exposing the financial vulnerability. Individuals who had a financial plan in place, would be in a better position to weather the storm, while those who did not have a right financial plan would be under financial stress.

Boost your Financial immunity at COVID Times

Key principles of personal finance are simple and effective, but many don’t follow the same as it requires a lot of discipline. Here are some of the key principles which can help boost financial immunity during current times.

  • Boost Your Income—COVID has changed the way businesses operate. We might witness a structural shift in certain sectors and industries. Individuals who have lost their job or who have got a pay cut should be cautious as the demand for their skill set is reduced or has become obsolete. So they should hone new skills which can make them more employable.
COVID Times: Boost Your Financial Immunity
Best time to develop a new skill
  • Never depend on single income —Make investment income your second source of income.  During good times, you need to save for your rainy days. Have a target saving every month, so that you will be well prepared for the future
  • Keep your expenses under control—COVID has brought in forced discipline. Many used to spend Rs 4,000-5,000 on a weekend pre-COVID, so their total spending was close to Rs.20,000-25,000 over weekends in a given month. Now all this unnecessary weekend expenses have drastically reduced. It would be better, as we get back to normal—to cut down unnecessary expenses.
  • Have a health insurance—COVID being a medical crisis, an individual is exposed to health risks. In an unforeseen event of hospitalisation, the financial burden can be significant. It’s better to take a decent health insurance cover, so that the financial risk would be reduced to great extent. You can even think of topping up your current health insurance limits. Most of the insurance companies have come up with top-up policies specifically for COVID times.
  • Avoid getting into new debts – During uncertain times, loan or debt can hurt very badly. It’s better not to take any new loan or debt. Also be wise in using credit cards. In this environment, it is easy to come across a lot of offers and discounts which might entice us to use our credit cards or get into debt. It would be better to postpone purchase, instead of getting into a debt trap.
  • Build an emergency fund – Three to four months of expenses as emergency fund which will come in as handy during tough times.

Conclusion :

An economic slowdown can significantly affect the financial position of an individual. The basic principles of personal finance though simple, need lot of discipline to be on track. Please remember the current economic slowdown, is just one of the slowdowns; We might have to see more in the coming years. If you were not well prepared for the on-going slowdown, you can start building your financial immunity with the above-mentioned key pointers.

Aiyappan V R CFA

Aiyappan is a CFA Charter-holder and a certified Financial Risk Manager. He specializes in personal finance and founder of www.merafunds.com. He strongly believes in the concept of financial freedom and loves to spread and help people achieve financial freedom. For any queries related to personal finance, you can reach him on aiyappan.vr@gmail.com.

2 Comments

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    Suma Banavara Reply

    Very good information shared with respect to financial planning, saving and spending for the right reason

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