The spread of COVID-19 pandemic has become an unprecedented situation across the globe. The outbreak was declared a public health emergency of international concern on 30th January 2020. Since then, the pandemic has grown at an exponential pace affecting more than 195 countries. This has resulted in a huge economic impact, financial slowdown and business uncertainty. The financial burden shall result in huge amount of unemployment, layoffs, salary cuts etc. across the developed as well as developing economies. In this context, here we have listed 5 things to manage finances under lockdown.
Also, here is a quick representation of how the spread of COVID19 pandemic has acted as destroyer of wealth on the financial markets.
5 things to manage finances under lockdown
Though the things mentioned here may be quite commonly known, yet, only a few individuals tend to act upon them.
1. Evaluating near term liquidity
Most countries are grappling with a lockdown for a period of atleast one month. Based on the spread and potential risk, these lockdown may last for multiple months. In such a situation, maintaining enough liquidity for near term survival becomes a must. According to classic personal finance tips, an emergency fund amounting to six months expenses is a must. This fund can be held in liquid assets like cash, digital wallet, current account, savings account or a short term debt fund. To evaluate your near term liquidity you should look at monthly expenses related to grocery, medicines, rent, utility bills etc.
2. Leveraging Credit Cards in a disciplined way
In case you have a credit card, use it only for survival expenses. This allows you an extra period of at-least 45 days to defer your payments. Further. figure out the usage of accumulated bonus credits to get discounts. Use credit card discounts on online shopping for groceries & utility bill payments to ensure minimal payouts. If you have a good credit history, check out for zero cost EMI option availability and convert your payout into smaller down-payments. Avoid credit card usage for non-essential items and consumer durables.
3. Avoiding panic buying & hoarding
During the pandemic, the most important thing is to stay safe from COVID-19. The requirement to quickly collect or hoard groceries, food items etc. may expose you to the virus itself. Further, panic buying is not at all required due to availability of essential items like vegetables, grain, groceries, fruits, milk etc. during lock-down. The tendency to hoard in anticipation of price increases later on as well is not the right excuse for panic buying.
4. Liquidating investments for emergency requirements
Ideally this should be the last option for managing finances under lockdown. However there a few things that you can do without incurring a huge loss. In case you are maintaining recurring deposits, you can stop payments and restart after few months. In case of fixed deposits, you may choose the one’s with lowest returns and longest time periods remaining to ensure minimal loss in case of breakup. You may pause equity linked savings schemes having a lock-in of around 3 years. Also recently the rates across various debt products have been reduced, you may liquidate some funds to meet emergency requirements for example provident funds, endowments insurance plans (if premium is quite high). You may also look out for booking partial profits from open ended mutual funds as well as stocks.
5. Creating an alternate source of income
Emphasized quite a few times, this is probably the most important asset to fight uncertainties. Most people depend on a single source of income which comes from either a job or a business. Once this is stopped, panic sets in and there is an unknown hustle for survival. It is important to avoid this situation by leveraging either investments, knowledge, network, skill or aptitude to create an alternate source of income. Once your alternate source of income exceeds your primary income, you are said to financially free. This is the situation to be in for creating huge amount of wealth.
Using these 5 things to manage finances under lockdown, you would also create a sense of financial discipline for being financially independent. Stay safe and follow lockdown regulations to ensure good health.
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