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26 Mar

How to manage your finances in the time of self-isolation

The world is facing a health crisis, one that doesn’t appear to be easing off soon. And with markets crashing globally, pay cuts and downsizing could soon become a reality. Here’s how couples can judiciously manage their finances to weather the storm

The deadly COVID-19 has caught the world by surprise, leaving a trail of devastation all around the world. And with India reporting a rising (and alarming) number of cases every day, the situation has turned grim. With many states under lockdown, most employees have been directed to work from home or go on leave. Sadly, the situation looks likely to persist, forcing everyone—couples included—to take stock of their resources and put a financial strategy in place.

 

Don’t panic, just save

Sharing his thoughts on the matter, Rupesh Nagada, Managing Director, Family First Capital Advisors, explains, “It is a very difficult time and one must not panic. Couples must undertake a prudent cash management approach towards handling their finances. For this, I’d recommend maintaining six months worth of emergency funds in liquid form or in one’s bank savings account. Avoid taking new loans especially for depreciating assets like cars and smart phones and cut back on unnecessary expenses like eating out, online streaming subscription plans and non-essential shopping.” For those with existing loans to repay, Nagada suggests contacting one’s bank to renegotiate the interest rate. He also suggests looking for alternate sources of income or acquiring new skills that could help one earn an additional income.

Tip: Couples living on rent can approach their landlords to amicably work out a solution in regards to rent payment.

Design a financial plan

With monetary commitments that range from providing for dependants to repaying loans and paying rent among other things, it has become imperative for couples to take stock of their finances and devise a plan based on their own unique circumstances. And many couples have been quick to do so—case in point, shipping industry professional Ranadeb Ray and his wife, who have wisely allocated and demarcated funds for their various expenses to sail through this crisis. Ranadeb says, “We are being vigilant in our approach. We have set aside 40 per cent of our salaries for emergency purposes. Twenty-five per cent has been set aside to pay utility bills, 25 percent towards buying groceries and household provisions and the remaining 10 per cent will be saved for the coming months.” The couple, like most others, has also curbed their expenditure on non-essential goods like new clothes, luxury purchases and ordering food from restaurants.

Tip: List down your monthly earnings and expenditure. Separate the essential expenses from the non-essential ones. Calculate the money needed for key expenses for the next six months and set it aside. Save the rest in case of an emergency.

Save for a rainy day

And with the worry of pay cuts and recession looming, one wonders if it would be a wise time to invest or even consider liquidating assets. However, most experts are reiterating the importance of saving in the current situation. Nagada avers, “One must save at any cost. Diversify your assets in different classes like debt, equity and gold. Stagger your investments in equity funds. Do not stop paying your SIPs, in fact, now is the best time to build your equity portfolio by way of a small SIP investment. And if you don’t have a health or life insurance plan, consider going in for a term life insurance plan.” And in the eventuality that the situation becomes dire, with little or no inflow of income, he advises, “Choose a Systematic Withdrawal plan (SWP) for your debt-based mutual funds; this will help you bridge the gap between your income and outgoings. As a last resort, get rid of depreciating assets like cars and bikes and reduce or end your EMIs.”

Suruchi Jain, Founder, Opportune Wealth Advisors agrees and recommends investing in fixed deposits, especially if you have a small risk-taking appetite. She also emphasises the importance of holding onto one’s job in this period of uncertainty. It goes without saying that now is not the time to switch jobs, industries or start a venture.

So with early and diligent planning, you can reduce the financial impact of the current crisis.

Photos: iStock

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Gayatri.S / [email protected]
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