The drastic changes that we have seen in the world economy due to the global spread of COVID-19 need no introduction. You would have already witnessed the volatility of the market. As we all have seen in news reports, around 25% of the workforce have lost their jobs and many others have witnessed pay cuts. Country Lockdown has caused some small businesses to shut down permanently and others have witnessed a fall in business. All this has led you to have an indepth look at your own investment portfolio.
As coronavirus continues to spread and there is no vaccine that is being invented yet to cure this disease, it is crucial that we take steps to keep our personal finances in place. You might be having a question as to how we need to do it? In this blog, we will discuss all those important steps that you need to take, to make sure you are securing yourself for the coming months and also for the years to come.
Let us discuss these steps in detail.
1. Manage your cash flow – First and most important step is to revisit your cash flow. When I say cash flow, I mean income and expenses. You need to review your current income and also estimate your future income for at least 2 years. Put some thought on how the lockdown has impacted your current income and till when this effect will last.
It is suggested that you try to explore more sources of income. For example, if you are good in maths, you can start teaching maths to students. Explore your talents and start monetising it. It is always good to have more sources of income rather than depending on just one. Apart from income, put some serious efforts in reducing your expenses, if possible to the extent of a pay cut, if any.
2. Create an Emergency Fund – Next step would be to create an emergency fund. It is important to be prepared for any uncertainty which may come. If you had an emergency fund and you used it already during current lockdown owing to pay cut or job loss then refill it at the earliest.
The amount in the Emergency fund should be equal to 6 to 12 months looking at current uncertain times. This fund can be created by utilising the money from non performing funds. Also, you can utilise your vacation fund for this purpose.
3. Protect yourself and family from this novel Coronavirus – Another important aspect of financial planning is having adequate health insurance policy. If you already have one, check if that amount is adequate if anyone or all the family members become COVID-19 positive. While selecting a health insurance plan, it is important to check inclusions and exclusions in the policy.
4. Protect your family’s expenses from future uncertainties – Not only health Insurance but also you should have an ideal life insurance cover. This is because your family’s goal like children’s education should not be affected in your absence. There are multiple types of life insurance policies, you should choose the one that suits your needs the best. If you have a limited budget, then term insurance would be the best bet.
5. Debt Management – If you have too many loans and most of your income is going towards your EMIs, then now is the time to streamline your debt. Do not take any more loans until and unless it is the only option left. Start creating a plan to pay off your high interest loans.
6. Short term Goals – After doing all of the above, you should be focussing on short term goals first which are critical. For e.g, if your child’s education is 2-3 years down the line then you should be focussing on how to create that fund or refill that fund before jumping in for long term goals. It is highly recommended that you review all of your short term investments.
7. Delay Discretionary goals– It is suggested that you keep all your discretionary goals at hold for some time till this COVID-19 situation eases out. Postpone your goals like buying a second home, vacations, buying a Car etc. Instead, if you have already invested some amount towards these goals, you can utilise this corpus either towards emergency corpus or short term goals.
8. Long term Goals – Long term goals will be the last to review. You should also know that the investment you made for these goals are long term in nature so no need to worry about short term volatility. You can get help from a financial advisor to get your portfolio reviewed.
9. Organise your finances – Last but not the least, you should organise your paperwork. You may update nominee details in banks, insurance plans, Mutual fund investments etc. If you have not linked your aadhaar with PAN, you may do it now. It is further suggested to switch to digital platforms wherever possible so that your time is saved.
Read More :- Importance of Insurance amid COVID-19
So these were some of the pointers that you should keep in mind while doing your Financial Planning amid this pandemic. If you are one of those who make active decisions to review their investments, there’s something you definitely need to double-check based on the above points. You can always consult a financial planner to make this process easier for you.