The spread of COVID-19 has changed our lifestyle and affecting our financial, professional, and social environments. The disruptions caused by current public health crisis is presenting economic challenges with growing repercussions for both businesses and individuals. While some factors affecting financial well-being are beyond individual control, financial knowledge can help us to better manage our personal finances through times of hardship. Below are some of the tips to manage our personal finance during the current crisis.    

Cash is the KING

Warren Buffet once said that Cash is King, especially in Time of Crisis. This is not only true in businesses but equally important in our personal finance. Therefore no matter how adequate our savings are, we never know how long we might need to cover our expenses in the event of a loss of income during the crisis. During the normal situation, depending upon our lifestyle it is assumed that saving of 3 to 4 months is adequate to cover emergency requirement, however, during the crisis and it is important to have at least 6 to 8 months emergency savings for emergency purposes to fulfill the basic needs. This is important because as opposed to the developed countries where social security system is robust, we don’t have similar arrangement in place. Therefore, any source of cash, how small it may be, we need to seriously consider it for our emergency fund. For example, if we can save monthly Rs. 3,000 per month just by refining our debt, we should seriously consider it. 

 

Expenses

The risk to income means that we all will need to learn to cut back on a lot of expenses. Incurring no expense on eating out, entertainment, travel, clothes, furniture and home décor, should be the new norm. Many parts of the worlds, most households are postponing expenses, beyond grocery and utility bills. This is needed given risks to income. One way to plan our expenses is to use the experiences of the last few months to evaluate how our financial life will pan out.

The first lockdown started from March 24, 2020 in the country. Review the list of expenses that occurred during the first two months of the lockdown. Identify essential and non-essential expenses and compare with your source of income. Make a list of questions and take stock for the next 6 to 10 months. Some of the key questions that we can consider for our budget are: Is there money in the bank to cover basic costs for that period? What happens if one or both wage earners of the household lose their jobs or their salaries are cut down? How much of a pay cut can be taken? What is the source of liquidity if the job is lost? What are the options to raise loans? [u1] Etc. These questions will give us a clear road map for planning our and cutting down the expenses and dedicate any extra money saved to build our emergency savings.

Another way to cut down the expenses is to avoid using excessive credit card. Research has shown that we are more careful on spending by debit card and cash than credit card. Since cash is not involved, we have the tendency of using credit card excessively even for those items which are not necessary.  However, it will create an additional burden at the time of the payment and further drain our savings. Therefore, it is highly recommended to keep our credit card for the emergency purposes and for small portion of household expenses. Rather use Cash and Debit Card for the daily expenses. This way, we can keep track of your expenses and can plan accordingly. Similarly, Carrying debt, especially high-interest credit card debt, is never advisable.

In recent time, the interest rates have fallen sharply in the country. Therefore, if some of us have loans, it may be time to refinance at a lower rate or bargain with the banks for the lower interest rate.  Small savings from interest rate will have a bigger impact in the mid to long term due to the compounding effect. A recent survey from McKinsey& Company (July 2020) shows that customers wants the continuation of the tangible support on credit terms—waiving late fees, reducing minimum payments, or permission to skip a loan payment from their banks. Therefore, it is advisable to discuss with the banks and negotiate for the same.  

 

Health Insurance  

With national health agencies continually stressing on the need to keep the immune system strong during the COVID-19 outbreak, people have slowly started prioritizing health. The pandemic has been an eye-opener for most people, reinstating why a health insurance cover is indispensable at all times. While a clean diet and regular workouts are indeed important to stay healthy during the current crisis, one extra health measure is to buy health insurance. The medical expenses are very high in the country especially in the private hospitals. In case of any health issue, it will drain our savings and put us in financially distress situation. Health insurance will not only help to maintain our savings but also provide us a peace of mind. If some of us have already taken the health insurance, it is advisable to check the offers and conditions and change it for more coverage, if necessary.  
 

Investment

If we have invested in the stock market, this is not a time to selling our investments right now. Many people have seen their portfolios decrease in value which is normal during the crisis. If we can afford to, however, we need to consider contributing more to our retirement savings and other investment accounts. Historically, we have seen the stock market always rebounds eventually after the crisis. Therefore, take a long term view in the investment and don’t panic.

If some of us are planning to make an investment, please note that the most important strategy during crisis -time is to playing it safe. Therefore, it is recommended to avoid investments based on the speculation and herd mentality. Focus on finding companies with good cash flow and low debt for the safest investment options. Identify and invest some portion of our savings in those companies that are providing regular cash dividend. Investing in dividend stocks can be a great way to generate passive income. As a rule of thumb, we should not take any major risks during the uncertain / crisis time while investing.

 

Finally, understanding finances is the best investment we can make during this time. Financial planning is not all about money only, it also involves our time and effort in seeking and gathering information and take informed decision.