7 money management tips in times of COVID-19

To make financial decisions easier, here are 7 money management tips in these uncertain times.

May 20, 2020 01:05 IST India Infoline News Service

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India has been facing an enforced lockdown for over six weeks.  In these uncertain times, life as we know it goes for a toss. Everyone’s struggling to adjust to the “new normal”. Our finances too take a hit, as salaries get delayed with expenses rising as we preempt a lot of our purchases. And off course, credit card bills need to be paid, EMIs have to be fulfilled and other routine bill payments need to be cleared. Even for people who have had the foresight to build an emergency fund, these money matters may be overwhelming. How do you prioritize your funds? What is absolutely necessary and what can be put off for another time? This decision can be quite taxing and difficult to pin down. To make these decisions easier, here are 7 money management tips in these uncertain times.
  1. Review your Budget: You must be thinking that this is so obvious. This is not even a significant information. Hear me out. Your first step in preparation is consider the emergency situation. Don’t be frivolous with the cash. Keep money handy, and spend very carefully. It will be ideal for households to toss out frivolous expenses and spend money only on essential items and services. If you’re facing a significant reduction in income due to the COVID-19 pandemic, then consider this, is it a one-time incident, such as not receiving your pay due to a payroll mistake, or is it a long-term issue such as a job loss, which could put you out of work for months? It is also important to consider if it’s a situation you have control over, or one you have little or no control over. While constructing your crisis budget, do a thorough skim of every line of expenses in your budget and ask yourself honestly if there is an opportunity to save.
  2. Avoid Debt: Run from debt like plague. That includes not deferring payments like EMIs if you can afford it. Do not delay your credit card payments even during an economic standstill. The three-month moratorium allowed by the Reserve Bank of India (RBI) on EMI repayments seems to be a breather for those who had been demanding a deferment due to the lockdown. However, the moratorium provides no interest payment relief to borrowers. If you choose not to pay the EMI, you will be charged an applicable monthly interest rate. If you need to skip EMIs or payments, do it by ranking your payments by the amount and interest rate payable. Credit card debt tends to be at very high rates, so best to pay off on time and minimize expenses. And it goes without saying—Do not borrow!! Unless and until it is an extenuating emergency, make do with what you have rather than taking on debt.
  3. Diversify your income: Decreasing expenses is part of a crisis budget, but also look for any way to increase your income. In addition to building your skills and consolidating your knowledge, think about how you can leverage those skills to start a side hustle, monetize your expertise, and diversify your income sources. Giving online tuitions, conducting hobby classes or teaching a foreign language are some examples. There are many freelance sites that you can access to help you with this. You just have to take some time out, (maybe weekends) and work on your supplementary income.  The definition of normal is likely to change post the lockdown.  Take this time to ensure that you prepare yourself financially for what the new norm will be.
  4. Realign your financial goals: Financial goals are a must, if you want to live a fairly stress-free and secure life. However, at times like these, it is best to review and reclassify your financial goals. Some goals are absolutely necessary and should not be tampered with like saving for your children’s education, investment towards family health insurance, etc. Then there are some of the other financial goals that can take a backseat until you are on firmer ground saving for a car, family vacation, etc. Such goals can be delayed or at the worst, be sacrificed in the near term to ease pressure on your finances. Prioritize saving and investments towards necessary goals and pause or withdraw the rest.
  5. Liquidate when necessary: In the times of a crisis, you must have enough liquidity to meet your daily requirements. Scan your asset list, and keep a mental list of assets you can liquidate if needed, even if it is at a loss and a lower price. Prioritize and rank your assets according to their accessibility. Keep long term assets like stocks, property last on your priority list while assets like gold and liquid fund holdings can be utilized sooner if the need so arises. This is just so you can recognize what you can give up when required. Do not utilize these assets as collateral for loans. That just defeats the purpose.
  6. Don’t stretch your finances to invest: This is the time one must be calm and composed. You must not give into panic buying or selling for that matter. Yes, stocks may be falling and you might find your choicest companies at rock bottom prices. Don’t give into the impulse to buy if you can’t afford to. If you don’t have the money, avoid investing in stocks. You might give in to your impulses now, but if your budget goes for a toss because of this investment, you might have to sell off assets at a loss. This is not the time to speculate or gamble. The tough times, as they say, don’t last but tough people do.
  7. Avoid panic: When the situation is out of your hand, panicking just compels you to make erroneous decisions. Before taking any decision during these times, the prudent thing is to ask yourself the probable impact of the move in the long run. Consider applying this check to all aspects of your financial life, be it household budgeting or investment. For example- do not liquidate your long term mutual funds for short-term relief. Think of what’s best for you in the long run and act accordingly.

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