COVID-19: 6 ways to manage your money better

The Government of India has extended the lockdown by another two weeks, till May 17. Certain relaxations have been given based on the category of zone, hinting at a gradual lifting of the lockdown.

With this extension, India has witnessed the strictest of lockdowns of 54 days. The resultant impact on economic activity is going to be immense with agencies pegging the GDP growth at less than 1% for financial year 2020-21. 

India’s April manufacturing PMI was at record low of 27.4 in April. Many people have already lost their jobs while others have been subject to a pay cut.

India’s largest company by market capitalization, Reliance Industries Limited, too announced pay cuts for employees in the range of 10%-50%. If this is the situation in RIL, imagine the condition of employees and workers in MSMEs.

Livelihood of millions has been impacted. In such a situation, the salaried class and the self-employed professionals need to revisit their financial condition.

Keep handy cash for expenses for 6-12 months (buffer)

We need to build a cash reserve to meet any untoward incident like a job loss. If your take home salary / earning is Rs 1 lakh per month, you need to have a reserve of Rs 6 lakh to Rs 12 lakh. This money shouldn’t be invested in stock markets because of the current volatility, but kept in safe instruments, like fixed deposits of PSU/big private sector banks. Even if you don’t face any job loss you should strive to save money each month and build this reserve amount.

Take a term life cover (5-10 times CTC)

COVID-19 teaches us that life is uncertain/unpredictable. Anything can happen any time. If you don’t have a life cover, it’s time to take one. This would take care of your family expense in case of any untimely death due to such a pandemic.

Life cover should be a minimum of 5 times your current cost to company. Term life cover is not very expensive as endowment plans but my suggestion is don’t go for the cheapest. Take into account the fact that the company’s policy you take is going to survive through the tenor of your policy. 

Take a medical cover 

If you are the one who relies on company provided health cover then it is the time to have your own. Company health covers don’t work in case you lose your job and also during the intervening period of job switch.

The earlier you take the better as premium depends upon your age and health. Due to competition in the sector you can have a Rs 50 lakh cover for 35-40 age couple with 1 kid and no pre-disease for just Rs 25-30,000 per annum which works out to be Rs 2.500 per month.

If you have a daughter, open a Sukanya Samriddhi account

With fixed deposits rates plummeting and a choppy stock market and a near-dead real estate market one doesn’t have many lucrative investment options nowadays. If you have a child (daughter), open a Sukanya Samriddh account in her name. This could be used to fund her education as you can redeem it at the age of 18 or 21.

It is tax free and interest is also higher at 7.9% for last year. You can park Rs 1.5 lakh per annum in this scheme. 

Become debt-free (try to pay off debt, reduce your EMIs)

It’s being said that companies with stronger balance sheet that is having less debt or no debt will be the ones who will survive this pandemic. RIL aspires to be net debt free by 31 Mar 2021 (Net debt zero). That is, have enough cash / investments to cover the borrowings.

The same principle applies to individuals as well. It is better to be debt-free so as to be free of EMI pressures. You should use part of your savings to pay off debt (home/car/personal). Anyway, today the savings interest rate is much lower than loan rates even after considering the tax benefit on interest. 

Hold on your discretionary expenditure (new house/car, etc)

You should resist the temptation of taking up a loan to buy a house or a car. Reason? Property prices are likely to fall. So it’s not a good investment option anymore. Also, in the private sector nobody has a visibility of 15-20 years in a job. So hold your horses on discretionary expenditure. The world is witnessing a recession. Even Warren Buffet is sitting on a cash pile. 

This is a good time to bring some financial discipline and evaluate our finances.

This Article has been originally published here

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