10th December 2020: The COVID 19 crisis has pushed the global economy towards contraction. Falling revenues across industries have resulted in thousands of job losses or drying up of contractual and freelance work. Resultantly, many people have lost their livelihoods or are staring at shrinking incomes even as their financial liabilities continue to remain more or less the same. According to data compiled by the Centre for Monitoring Indian Economy (CMIE), over 27 million people in their 20s lost their jobs in the month of April[1].
In such circumstances, managing your finances and debts can be a major challenge. If your two income family has suddenly lost one source of income; if you have had to take a pay cut due to the crisis or have been experiencing dwindling of your freelance work, you need to adopt better finance management practices. Even if you have so far not been financially impacted, it is important to plan prudently for the future. Handling of debt can also be tricky in such circumstances, especially if are already eating up into your savings.
Here are some suggestions on how to go about your financial planning in a COVID 19 affected world:
1. Start by comprehensively assessing your finances
When the going is good, we often do not care about keeping a book of our finances. The result is that we usually do not have a concrete idea of how much we are expending on which heads, and whether all these expenses are absolutely necessary or avoidable. Now is the time to clearly prepare a financial account of all your expenditures. Delineate the heads into essential, avoidable and unnecessary. The lockdown has also helped people save on some of their expenses such as daily travel, fuel costs, discretionary spending and conspicuous consumption. It would serve you well to take into account all your savings as well and conduct an analysis of your financial state.
2. Cut down on non essential expenditure
Start by cutting on the unnecessary expenditures and trim down your avoidable expenses as well. If your family has multiple subscriptions of e-magazines, online newspapers, OTT platforms, video streaming services, set top box subscriptions and other such overlapping expenditure, prune them down immediately. Similarly, if you have had memberships running in community clubs or gyms, avoid renewing them. These expenditures might appear to be low individually, but they can amount to a significant aggregate when taken together. Find all avenues where you can save money. Any saving is good saving. Put off any big tickets expenditures or buying decisions that were on your plan.
3. Seek your lender’s help in pruning your liabilities
In March, the RBI asked all lending institutions including banks and housing finance companies (HFC) to give a three-month moratorium on term loans to their borrowers. Following this line, several banks have offered the facility to borrowers. However, long term planning of adjusting your loan repayment liabilities is important during this time. If your cash flow has decreased, it is better to seek your lender’s help in reducing the monthly installment amount. You may also consider the option of merging two existing loans. Banks and lenders have also devised interesting initiatives and policies to help make it easy for people to meet their liabilities. You must call your relationship manager and seek his/her advice.
4. Consider augmenting your income
As you save a lot of travel and conveyance time, most people have a few free hours every week at hand. You may consider utilizing this time taking up an additional assignment or project. Pick a freelance project or two, or offer online tutorials if you can to augment your income. Join social media communities and networks that can help you get work as a Consultant or freelancer.
You may also use this time to augment your skill set as this will help bolster the credentials of your resume and add to your prospects of gaining an additional job. Consider joining online courses on digital marketing, social media management, communication and creative writing etc that can help you get freelance projects in addition to your existing job.
5. Review your investments
It is also time to take stock of where your money is invested and whether you need to withdraw some of it to increase availability of liquid cash at hand. Your investment calls must be strictly based on your financial goals and liquidity requirements, rather than just the market sentiment. In the current crisis, investments in equity, mutual funds etc are facing losses. If you want to shift these assets to more risk averse instruments, you may consider liquidating them or investing in gold or putting them into instruments such as PPF and Fixed Deposits which are relatively risk free. However, if your income flow has remained unaffected, it is advisable to continue your long term financial investments.
6. Create a contingency fund
The time period ahead is likely to stay volatile for the foreseeable future. So, even if you have not been affected by the financial crisis so far, it is important to prepare for it. Create a contingency fund that can help you meet your basic requirements in case a financial emergency strikes. You may do so by liquidating some Fixed Deposits or other investments that you deem worth liquidating. Your emergency fund will come to your rescue if there’s any loss of income in the near future arising out of this pandemic.
