The whole world is experiencing uncertainty and hardship due to the unprecedented COVID-19 pandemic. This pandemic came at a time when the global economy was already facing tough times. Hence, in the given situation, it is important to take prudent financial actions, both preventive and corrective, to ensure overall financial wellness of an individual and his/ her family.
Align your investment decisions with the changing reality
As the fear of the global economy moving towards a recession grows, it is likely that there will be a liquidity crunch coupled with high inflationary pressures. In this situation, setting up short-term financial goals becomes important. Any investment decision during this period should be made factoring in the short-term goals of an individual. The investments should be adequately liquid to address contingencies and short-term needs.
Take a close look at your financial records
Your financial assets should be available for immediate use, should the need for funds arise. It is time to take a close look at your financial records to ask questions such as ‘do you have a balance sheet’, ‘have you made a will’, ‘does a trusted family member know about your finances, insurance policies etc.
If the answer is ‘No’, then it may be advisable to work in this direction:
- Create a will to ascertain rightful owners of your assets
- Prepare a list of assets/ liabilities in the form of a balance sheet and share it with someone you trust
- Appoint nominees for all your investments/ bank deposits
- Keep your life and medical insurance policies handy and easily accessible. Also, share the details with immediate family members
- Take stock of all your loans and existing EMIs and create a backup plan to service the debt
In summary, ensure that your financial documents are appropriately managed, documented and necessary action is taken to achieve overall financial wellness.
Tackle the current situation with financial prudence
The uncertainty around the pandemic calls for cutting down unnecessary expenses and excessive use of credit cards which would only increase your liabilities.
Efforts should be made to ensure timely payment of EMIs for existing housing loan and premiums for insurance policies. As a breather, the Reserve Bank of India has announced moratorium on payment of term loans for 3 months. However, it is prudent for an individual to continue paying EMIs and avail the moratorium as a last resort. This would ensure that the overall interest payable on the loan does not increase and the loan can be closed on time, as during the moratorium, interest would continue to accrue and get added to the loan amount.
The key take-away here is to plan your expenses well and be cautious rather than sorry.
Create a backup plan
In case you are vulnerable to salary cuts or a job loss, it is the time to introspect and create a contingency plan to face this situation. It is advisable that one should re-evaluate their financial position and ability to service debts along with meeting necessary expenses. Investments could be redirected to liquid assets to avoid sudden cash crunch and avoid the risk of being a financial defaulter. Keep a plan B to ensure regular income as that would be helpful in uncertain times.
Take a look at your insurance
The current pandemic has reiterated the need for insurance in uncertain times, so opting for a life or health insurance plan would be a prudent decision, if you already don’t have one. In case, you are yet to pay the premium on life/health insurance for the financial year 2019-20, as per the recent relaxation by the government, you may still pay the same by June 30, 2020 and claim deduction (under the Income-tax Act, 1961) for this financial year.
Financial wellness along with physical and mental wellness will help us sail through this uncertain phase with minimal disruption. You would have heard of the saying tough times never last, but tough people do. Better planning and managing one’s financial objectives, will help in navigating through the tough times as long as they last. This situation has reiterated the need for adopting financial discipline and planning in the ‘income earning’ age, especially for millennial’s.