What to do during thing period as your financial security?
Many people are facing the cuts in their salaries ranging from 20% to over 55%. Several people whose bonuses were announced are not going to receive them due to the cost cutting initiatives of their employers. And, yes, there are some who are continuing to receive the revised salaries with increments and bonus. What you are going through financially as an employee, is a function of what industry your company belongs to and the impact it is facing due to Covid-19.
Given the uncertainty around us, how do we make this crisis work for us in order for us to feel financially safe in the future. Here are some suggestions:
Your emergency fund comes handy now: Remember you had always maintained it for a job loss emergency. Now is the time that this corpus will bail you out until you find your next employment opportunity. And if you have been fortunate enough not to lose your job, then ensure you are not eroding this corpus on any discretionary expenses. It is indeed meant for a job loss emergency and should always be kept that way. Keep this money in the least risky financial asset, preferably liquid or ultra short-term debt fund where your tax liability is the least in case your holding period ends up being more than three years.
Your insurance review becomes more important now: Being in a lockdown should give you ample time to review your cover. If you have not taken life insurance and/or health insurance, go for it now. No other event can teach you the importance of taking these covers more than this one. If you already have them, please ensure you have a personal insurance plan for life and health as well. Your current job may not be around and the new employer may not have as good a cover as the previous one. One must ensure that the policy covers events like Covid-19.
Track the spending and investing habits: Are you getting the time to track your expenses and see how much has been cut down due to the lockdown? This time at home should also give you a chance to categorize your living expenses in two boxes—“nice to have" and “must have". Sit with your spouse and take stock of how you would like to control your living expenses keeping in view your financial goals and uncertainty around the job and economic situation, and then fill in your expenses in these two boxes. Please note that the time spent with your spouse is very crucial even if he/she is not as much into money management as you would like him/her to be. She/he can bring a completely fresh perspective to the exercise that you have planned to do.
Don’t rejig the portfolio for long-term goals: Your portfolio should not be rejigged unless your goals are due in the next two-three years. The importance of moving money out from risky assets when the goal is due can’t be overstated. Any goals that are due before 2024 must have their corpus invested in debt funds that are least risky and will bring tax-efficient returns while protecting the capital. Any money for goals that are due after 2024 can be invested in index, large-cap, multi-cap and mid-cap funds, depending upon your investment horizon.
Learn to live with the uncertainty around us: Uncertainty is always a part of life. Given the economic crisis, one should seek professional help to protect the capital first and then invest to create tax-efficient returns. The part of the portfolio that generates inflation-beating returns should come only after the first two criteria have been met. Every downturn is followed by an upturn. We have seen it many times. Why would it be different this time? So be positive and hang in there. Focus on things that are in your control rather than worrying about what’s not.
Be aware of your behavioural biases: You might be terrified or over-confident of your investing decisions. You might be taking a lot of decisions yourself without consulting an expert on the impact they may create. You might be a top performer in your organization with a lot of cognitive biases when it comes to your money management skills. Whatever the case may be, you must engage a professional to validate your decisions. Be conservative to begin with. Do a lot of research before making changes in your portfolio and do not give in to impulses even though your decisions paid off well in the past.
If the change around you is making you anxious, focus on the present. Be grateful and support the people who are not as fortunate as you are.
Many people are facing the cuts in their salaries ranging from 20% to over 55%. Several people whose bonuses were announced are not going to receive them due to the cost cutting initiatives of their employers. And, yes, there are some who are continuing to receive the revised salaries with increments and bonus. What you are going through financially as an employee, is a function of what industry your company belongs to and the impact it is facing due to Covid-19.
Given the uncertainty around us, how do we make this crisis work for us in order for us to feel financially safe in the future. Here are some suggestions:
Your emergency fund comes handy now: Remember you had always maintained it for a job loss emergency. Now is the time that this corpus will bail you out until you find your next employment opportunity. And if you have been fortunate enough not to lose your job, then ensure you are not eroding this corpus on any discretionary expenses. It is indeed meant for a job loss emergency and should always be kept that way. Keep this money in the least risky financial asset, preferably liquid or ultra short-term debt fund where your tax liability is the least in case your holding period ends up being more than three years.
Your insurance review becomes more important now: Being in a lockdown should give you ample time to review your cover. If you have not taken life insurance and/or health insurance, go for it now. No other event can teach you the importance of taking these covers more than this one. If you already have them, please ensure you have a personal insurance plan for life and health as well. Your current job may not be around and the new employer may not have as good a cover as the previous one. One must ensure that the policy covers events like Covid-19.
Track the spending and investing habits: Are you getting the time to track your expenses and see how much has been cut down due to the lockdown? This time at home should also give you a chance to categorize your living expenses in two boxes—“nice to have" and “must have". Sit with your spouse and take stock of how you would like to control your living expenses keeping in view your financial goals and uncertainty around the job and economic situation, and then fill in your expenses in these two boxes. Please note that the time spent with your spouse is very crucial even if he/she is not as much into money management as you would like him/her to be. She/he can bring a completely fresh perspective to the exercise that you have planned to do.
Don’t rejig the portfolio for long-term goals: Your portfolio should not be rejigged unless your goals are due in the next two-three years. The importance of moving money out from risky assets when the goal is due can’t be overstated. Any goals that are due before 2024 must have their corpus invested in debt funds that are least risky and will bring tax-efficient returns while protecting the capital. Any money for goals that are due after 2024 can be invested in index, large-cap, multi-cap and mid-cap funds, depending upon your investment horizon.
Learn to live with the uncertainty around us: Uncertainty is always a part of life. Given the economic crisis, one should seek professional help to protect the capital first and then invest to create tax-efficient returns. The part of the portfolio that generates inflation-beating returns should come only after the first two criteria have been met. Every downturn is followed by an upturn. We have seen it many times. Why would it be different this time? So be positive and hang in there. Focus on things that are in your control rather than worrying about what’s not.
Be aware of your behavioural biases: You might be terrified or over-confident of your investing decisions. You might be taking a lot of decisions yourself without consulting an expert on the impact they may create. You might be a top performer in your organization with a lot of cognitive biases when it comes to your money management skills. Whatever the case may be, you must engage a professional to validate your decisions. Be conservative to begin with. Do a lot of research before making changes in your portfolio and do not give in to impulses even though your decisions paid off well in the past.
If the change around you is making you anxious, focus on the present. Be grateful and support the people who are not as fortunate as you are.
Over the last few years, the concept of financial wellness has been gaining importance and with this Covid-19 pandemic, it has become even more relevant to be ready to deal with financial emergencies and cash flow issues. World over, financial wellness has become an essential part of the education curriculum for the younger generation across universities, teaching them how to manage their funds/student loans even before they step into the working life.
Financial wellness means to be fiscally (money-wise) healthy. It means that you know how to manage money and can establish short-term and long-term financial plans. It means to spend money smartly while securing your financial goals, commitments and have enough resources in case of uncertain times. Here’s what you can do in the coming days:
Know your investments
Having a good knowledge about your financial position is very important and it helps you define your goals. First, list your financial assets and maintain proper financial records. This will help in distinguishing funds for immediate use, should the need arise. Second, have a statement of your assets/liabilities prepared and categorise them in accordance with your financial goals. Third, classify your assets between liquid assets (banks accounts, mutual funds, etc.,) and capital assets (properties and fixed term investments).
Pay adequate attention to inevitable commitments such as bank loans and plans to meet them endlessly. List the details of insurance policies and coverage. Do you have a will? And does it rightfully serve the needs of your family? Keep nominee details updated. Keep your trusted family member or friend apprised about the financial records and policies.
Right decision at right time
The pandemic has brought along uncertainties and hence meeting short term goals and having liquid funds at disposal has become the priority. Moratorium has been announced on payment of loans for three months. However, since the interest on loan for this period will still be accrued and added to the outstanding balance, try to pay EMIs. With relaxation on timelines for payment of insurance premium, one should not only take advantage of paying premium on life/health insurance within the extended time but also claim the available tax benefits. Unnecessary expenses should move to the backburner and spending should be focussed on creation of assets which can help in times of distress. Purchasing health and life insurance is important now.
Contingency planning
Have a contingency plan to ensure short-term liquidity. Make efforts to identify and pursue alternative means of regular income. Plan your expenses and loans based on your current income level.
To sum-up, financial wellness is important because we do not act rationally in times of distress. Hence, now is the time to focus on the reality knocking at the door.
Financial wellness means to be fiscally (money-wise) healthy. It means that you know how to manage money and can establish short-term and long-term financial plans. It means to spend money smartly while securing your financial goals, commitments and have enough resources in case of uncertain times. Here’s what you can do in the coming days:
Know your investments
Having a good knowledge about your financial position is very important and it helps you define your goals. First, list your financial assets and maintain proper financial records. This will help in distinguishing funds for immediate use, should the need arise. Second, have a statement of your assets/liabilities prepared and categorise them in accordance with your financial goals. Third, classify your assets between liquid assets (banks accounts, mutual funds, etc.,) and capital assets (properties and fixed term investments).
Pay adequate attention to inevitable commitments such as bank loans and plans to meet them endlessly. List the details of insurance policies and coverage. Do you have a will? And does it rightfully serve the needs of your family? Keep nominee details updated. Keep your trusted family member or friend apprised about the financial records and policies.
Right decision at right time
The pandemic has brought along uncertainties and hence meeting short term goals and having liquid funds at disposal has become the priority. Moratorium has been announced on payment of loans for three months. However, since the interest on loan for this period will still be accrued and added to the outstanding balance, try to pay EMIs. With relaxation on timelines for payment of insurance premium, one should not only take advantage of paying premium on life/health insurance within the extended time but also claim the available tax benefits. Unnecessary expenses should move to the backburner and spending should be focussed on creation of assets which can help in times of distress. Purchasing health and life insurance is important now.
Contingency planning
Have a contingency plan to ensure short-term liquidity. Make efforts to identify and pursue alternative means of regular income. Plan your expenses and loans based on your current income level.
To sum-up, financial wellness is important because we do not act rationally in times of distress. Hence, now is the time to focus on the reality knocking at the door.
Current COVID-19 situation has disrupted lives across the world, and at the same time, led us to focus on what’s really important to us, and how we can build simplicity and resilience in our daily lives to withstand unexpected events.
“The current COVID-19 situation has provided ‘me time’ for many of us for deeper reflection. The external shocks of the past month have highlighted the value of – maintaining good health, staying protected against all odds and risks, managing expenses, keeping amounts aside for savings and investment — for the rainy days and possible business interruptions, and being closely in tune with the needs of our families.”
Mostly, in times like this having adequate insurance is most important, and protecting yourself and family from the unknown becomes critically important. If you have been ignoring or postponing the conversation around insurance, experts say this might be the right time to consider it.
“If you are new to insurance, you might be faced with the question – which insurance product or policy is most relevant at one’s current stage of life? Just like in any other important purchase, there is no ‘one size fits all’ prescription and choice of product and insurance amount depends on the life stage and one’s financial and family circumstances.” Even though the insurance amount depends on the policyholder’s life stage and his/her financial and family circumstances, there are a few guiding rules that one can follow to make the right decision.
Young, single executive | Starting off
At this stage, there are few obligations and most people question the need for insurance. However, this is also the point at which one has good health, few liabilities, and advantage of the time to re-orient their future plans. Invest in a long-term pure protection life insurance plan which is relatively inexpensive and will not require extensive medical or health checks at younger ages. This is also the time to kick off your health insurance and stay protected against accidents or hospitalization which can hit you at any age. Look for flexible options that allow one to increase coverage at future life stages so that one could increase the insurance cover in line with inflation and increasing responsibilities.
Career-focused professional | Moving up
While moving up in an entrepreneurial career and changing teams and jobs, it is important for an individual to keep insurance coverage up to date and add cover in line with his/her increasing income. One may also start contributing to the family’s financial responsibility – so one should make sure to have adequate life and health cover. This milestone is a good time to start a long term investment plan, as you have higher income – you have higher risk appetite at this age and can invest in higher risk-reward options such equity funds in unit-linked insurance.
Starting a new journey | Getting married
With new responsibilities, it is the time one should tweak their health coverage and term plan, and purchase cover against critical illness. This is the time to start making long-term wealth plans – for those shared milestones, vacations. This is also the time to plan for retirement, which is a long way, hence, one could start early and small with a retirement/long term investment plan.
Bigger responsibilities | Arrival of kids
At this stage, one should re-orient one’s plans by purchasing additional life cover and add kids to one’s existing health plan. One should start with an insurance plan to provide for children’s education when they are young, ideally when they start schooling. This helps to protect the children’s education goals against any eventuality and let the power of compounding during the school years (14-16 years) work in the policyholder’s benefit. Keep in mind to re-assess term cover whenever adding any big loan, particularly, a home loan.
Stable, mid to peak of career | Growing responsibilities
With the increase in income one needs to keep aside higher amounts for unexpected requirements and meeting the family requirements. At this stage, start to think of creating a second income through income plans or shorter-term savings plans. Also, one should make sure to top up one’s health protection and term protection since going forward it will be more expensive and require more health examinations, typically post 45 years of age.
Towards alternative vocations and careers | Empty nest and golden years
This is the time to secure guaranteed income for life time. Experts suggest annuity plans or flexible unit-linked plans for creating secure income streams. One should re-balance one’s portfolio in existing investment plans to ensure one is not exposed unduly to market volatility at the time of maturity. Also, ensure continuity of your health coverage irrespective of your employment.
Make sure to understand the life stage and also specific requirements before choosing the right product. Keep in mind, whichever plan you choose, it’s for the long term.
“The current COVID-19 situation has provided ‘me time’ for many of us for deeper reflection. The external shocks of the past month have highlighted the value of – maintaining good health, staying protected against all odds and risks, managing expenses, keeping amounts aside for savings and investment — for the rainy days and possible business interruptions, and being closely in tune with the needs of our families.”
Mostly, in times like this having adequate insurance is most important, and protecting yourself and family from the unknown becomes critically important. If you have been ignoring or postponing the conversation around insurance, experts say this might be the right time to consider it.
“If you are new to insurance, you might be faced with the question – which insurance product or policy is most relevant at one’s current stage of life? Just like in any other important purchase, there is no ‘one size fits all’ prescription and choice of product and insurance amount depends on the life stage and one’s financial and family circumstances.” Even though the insurance amount depends on the policyholder’s life stage and his/her financial and family circumstances, there are a few guiding rules that one can follow to make the right decision.
Young, single executive | Starting off
At this stage, there are few obligations and most people question the need for insurance. However, this is also the point at which one has good health, few liabilities, and advantage of the time to re-orient their future plans. Invest in a long-term pure protection life insurance plan which is relatively inexpensive and will not require extensive medical or health checks at younger ages. This is also the time to kick off your health insurance and stay protected against accidents or hospitalization which can hit you at any age. Look for flexible options that allow one to increase coverage at future life stages so that one could increase the insurance cover in line with inflation and increasing responsibilities.
Career-focused professional | Moving up
While moving up in an entrepreneurial career and changing teams and jobs, it is important for an individual to keep insurance coverage up to date and add cover in line with his/her increasing income. One may also start contributing to the family’s financial responsibility – so one should make sure to have adequate life and health cover. This milestone is a good time to start a long term investment plan, as you have higher income – you have higher risk appetite at this age and can invest in higher risk-reward options such equity funds in unit-linked insurance.
Starting a new journey | Getting married
With new responsibilities, it is the time one should tweak their health coverage and term plan, and purchase cover against critical illness. This is the time to start making long-term wealth plans – for those shared milestones, vacations. This is also the time to plan for retirement, which is a long way, hence, one could start early and small with a retirement/long term investment plan.
Bigger responsibilities | Arrival of kids
At this stage, one should re-orient one’s plans by purchasing additional life cover and add kids to one’s existing health plan. One should start with an insurance plan to provide for children’s education when they are young, ideally when they start schooling. This helps to protect the children’s education goals against any eventuality and let the power of compounding during the school years (14-16 years) work in the policyholder’s benefit. Keep in mind to re-assess term cover whenever adding any big loan, particularly, a home loan.
Stable, mid to peak of career | Growing responsibilities
With the increase in income one needs to keep aside higher amounts for unexpected requirements and meeting the family requirements. At this stage, start to think of creating a second income through income plans or shorter-term savings plans. Also, one should make sure to top up one’s health protection and term protection since going forward it will be more expensive and require more health examinations, typically post 45 years of age.
Towards alternative vocations and careers | Empty nest and golden years
This is the time to secure guaranteed income for life time. Experts suggest annuity plans or flexible unit-linked plans for creating secure income streams. One should re-balance one’s portfolio in existing investment plans to ensure one is not exposed unduly to market volatility at the time of maturity. Also, ensure continuity of your health coverage irrespective of your employment.
Make sure to understand the life stage and also specific requirements before choosing the right product. Keep in mind, whichever plan you choose, it’s for the long term.
With shopping malls, restaurants, cinemas and airlines shut for business due to the coronavirus outbreak, people are discovering an unlikely benefit of the lockdown. They are actually saving money.
take a minute to think about what you can do with the money. Here are three options:
1. Build an emergency corpus: This is the first and foremost thing you should be doing with the saved money, particularly in an uncertain economic situation such as the present one.
Liquidity is a cause of concern in these trying times. people asking the question – how to get maximum return on an emergency fund. Keep it in a savings account and open a sweep account for the same or you can keep it in fixed deposits
Some banks allow parking money in FDs and automatically ‘sweep it in’ to savings accounts when there are debits from the latter. This allows you to earn a higher return than savings account interest.
Never expect any great returns on your emergency fund. You should be able to access the funds immediately. Learning from the ongoing crisis, one should try and have 12 months’ living expenses in the emergency fund. This will give you a peace of mind and confidence to face any untoward situation. Right now, it’s very important to be prepared for future uncertainties. One should build an emergency fund of at least 12 to 24 months’ of their expenses, inclusive of their ongoing EMIs.
2. Get your health and life insurance in place:
If you don’t already have health and life insurance policies, then get them right away.
Make sure that you have a robust health insurance policy in place that covers coronavirus treatment.
In case of life insurance, stick to low-cost term insurance and that too only if you have financial dependents.
3. Invest in mutual funds:
If you have the first two points covered, you can consider investing some money in mutual funds.
For low-risk investors and those with a time horizon of less than three years, debt funds work best. However, if you have a sufficiently high-risk appetite and a time horizon of 7-10 years, you can look at equity mutual funds. However, experts suggest splitting this into staggered amounts through SIPs rather than lump sums.
As experts have noted, first ensure that you have an emergency corpus as well as insurance cover in place. You can use your saved discretionary expenses to do this. If this is sorted, you can look at mutual funds and possibly equity funds if you have a high-risk appetite and long time horizon.
1. Build an emergency corpus: This is the first and foremost thing you should be doing with the saved money, particularly in an uncertain economic situation such as the present one.
Liquidity is a cause of concern in these trying times. people asking the question – how to get maximum return on an emergency fund. Keep it in a savings account and open a sweep account for the same or you can keep it in fixed deposits
Some banks allow parking money in FDs and automatically ‘sweep it in’ to savings accounts when there are debits from the latter. This allows you to earn a higher return than savings account interest.
Never expect any great returns on your emergency fund. You should be able to access the funds immediately. Learning from the ongoing crisis, one should try and have 12 months’ living expenses in the emergency fund. This will give you a peace of mind and confidence to face any untoward situation. Right now, it’s very important to be prepared for future uncertainties. One should build an emergency fund of at least 12 to 24 months’ of their expenses, inclusive of their ongoing EMIs.
2. Get your health and life insurance in place:
If you don’t already have health and life insurance policies, then get them right away.
Make sure that you have a robust health insurance policy in place that covers coronavirus treatment.
In case of life insurance, stick to low-cost term insurance and that too only if you have financial dependents.
3. Invest in mutual funds:
If you have the first two points covered, you can consider investing some money in mutual funds.
For low-risk investors and those with a time horizon of less than three years, debt funds work best. However, if you have a sufficiently high-risk appetite and a time horizon of 7-10 years, you can look at equity mutual funds. However, experts suggest splitting this into staggered amounts through SIPs rather than lump sums.
As experts have noted, first ensure that you have an emergency corpus as well as insurance cover in place. You can use your saved discretionary expenses to do this. If this is sorted, you can look at mutual funds and possibly equity funds if you have a high-risk appetite and long time horizon.