The coronavirus pandemic has spread like a forest fire across the globe claiming millions of lives. Apart from the loss of lives, it has been a precursor for the failure of many businesses spiraling to thousands losing jobs. The damage runs deep as the virus has prompted some of the female workforces to return home to taking care of their children due to child-care closures. These unprecedented times have led the families to have concerns about the fear of restricted income and what the future may hold. According to McKinsey, household financial decision-makers across the globe continue to report decreases in income and savings ranging from 30 percent to 80 percent.
Managing one’s personal finances prudently is crucial in these critical times. Though COVID-19 will continue its negative impact globally for quite some time now, few smart decisions from our end may help maintain healthy finances preparing us for the future.
Credit card dues to be the top priority
Credit card dues carry interests that are generally 2.5-3 times of those on term loans. This directly affects your credit score. Hence do not delay credit card payments even during a pandemic or an economic full stop. At least pay the minimum due to avoid exacerbated bills later.
Opt for moratorium only when strong cash flow
The moratorium on loan options offered in different countries seems to be a breather for those demanding a deferment due to the lockdown. However, the moratorium provides no interest payment relief to borrowers. Hence, this should be your second priority in paying up debt. Only opt for the moratorium when you are working in the worst affected sectors like aviation, hospitality, tourism, retail, etc., where the loss of jobs is severe. Even in such a scenario, contacting the lenders to reduce the EMI payout by increasing the term of the loan seems like a smart option.
Retrospect and re-evaluate your budget
The need for the households to re-evaluate their monthly budget becomes impertinent in these uncertain times of pandemic. The demarcation between necessary and luxury goods is a decision to make to save for the rainy day. Tossing out frivolous expenses is advisable and spend only on essentials. Saving for an emergency fund is important to provide a cushion in these trying times.
Build long term savings through regular investments
There is no right time to invest. The longer you are building your corpus through a systematic plan, the better you are hedging the risk of market fluctuations and compounding returns. Taking the advice of your investment manager (with the bank where you have your savings account), it is sensible to have a target saving per month and invest in a disciplined manner. ULIPs are particularly effective for building savings for your children as they come with a feature that in case of the sudden death of the parent, all future premiums are paid by the insurer. The money thus keeps growing and the child gets the full amount as planned when the policy matures.
Stock up to the need – Think about others
It is critical in some countries to stock up for the lockdown. However, hoarding and overspending on groceries is neither a good option to pursue nor advised. Governments across geographies are ensuring that there is no restriction on the flow of critical items and hence their availability will not be an issue. Hence, buying enough supply for a month (maximum) should suffice. Do not overspend and kindly do not hoard! Have a thought about other families who are also in need of these basic necessities as much as you.
Finally, adding to the suggestions above, it is normal to be worried about your finances in this uncertainty. Keeping yourself cool and sticking with the basics is the need of the hour. All the above are very basic suggestions but when followed works like ‘pure magic’. Stay safe and be positive. This too shall pass.