Covid-19: How To Deal With Your Personal Finance Problems In These Uncertain Times?
The lockdowns imposed to contain the outbreak of Covid-19 infection have caused widespread economic disruption due to the closure or suspension of business activities of many organizations – from small and medium-sized enterprises (MSMEs) to large companies. As a result, many people face financial hardship after losing a job or reducing pay – in some cases, stopping payment of full pay.
To manage their finances during such uncertain times, you need to follow the most basic elements of financial planning.
The first step in dealing with such a situation is to set up an emergency fund. Sufficient amounts needed for at least six months should be kept in liquid form – cash, savings bank deposit, breakable fixed deposit (FD), liquid / short-term funds, etc. – so that the person can go through a period of crisis without too much difficulty.
âAs the nation grapples with the second wave of Covid-19, many people are once again worried about their personal finances. In order to prepare for such unprecedented circumstances, it is important to maintain an emergency fund that can cover at least three to six months of basic necessities such as food, rent and monthly utility bills â, said Raghuvir Gakhar, CEO of PC Financial. .
Insurance is the most important instrument that provides financial cover against unforeseen eventualities. Individuals should purchase life insurance to provide protection for financially dependent family members, as well as health insurance to protect their savings in the event of a huge financial burden during hospitalization.
âThe current health crisis has also highlighted the need for quality health and life insurance with broad coverage,â said Gakhar.
In the absence of emergency funds and / or adequate insurance coverage, a person may need to take out a loan. To get a loan at a lower interest rate, one must maintain a good credit rating. For this, timely repayment of existing loans and credit card charges, etc. must be done. In addition to the loan, one can also opt for a line of credit to ensure rapid availability of money on credit up to the set limit.
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âIn order to have cash flow, it is also advisable to maintain a good credit rating because when you need cash, it will help you access pre-approved loans,â Gakhar said.
Long term loans
The current low interest rate regime may encourage you to buy long term assets like cars, air conditioners, etc. on credit, as well as real estate assets such as property. However, taking out a long-term loan creates an obligation to spend future income to repay the loan. In the event of loss of income due to certain emergencies such as the Covid pandemic, this aggravates the financial difficulties. It is therefore better to avoid unnecessary purchases on credit to reduce future financial charges.
âAnother concern is the purchase of real estate assets due to the low interest rates. The decision should be made after considering the short-term and long-term impacts of the pandemic. Finally, it is essential to maintain a healthy debt-to-income ratio and not to splurge on future income potential, âsaid Gakhar.