You need health insurance more than ever before
Before anything, ensure that you and your family have adequate health insurance. Modern viruses tend to mutate quite fast and a prolonged stay in the hospital can be complicated and expensive. Don’t get into a situation where your health insurance has expired and you have forgotten to renew. Even if your renewal is a couple of months away, make it a point to renew your health insurance right away. There is nothing more reassuring than adequate health cover in such a situation.
Ensure that aged people are ring-fenced from the crisis
Have you ever wondered why the Coronavirus has hit Italy, Spain and France so badly? That is because these countries have a large proportion of aging population. People who are above the age of 65 are a lot more vulnerable to contracting the disease and the fatalities are also quite high. If there are senior citizens in your home, make it a point to ring-fence them by reducing their social contact to the bare minimum and also ensure that you are prepared for medical exigencies.
No need to panic, but you may need your emergency fund
This is not about a doomsday scenario but the economic ramifications of this shutdown will be visible sooner rather than later. Large companies like Air India, Indigo and Apollo Tyres have already asked their employees to take a pay cut. This would clearly mean that you may fall short of resources. Ensure that you have enough of an emergency fund to fall back upon in these trying times. Reserve of 5-6 months should be good.
This is not the time to splurge on Gucci perfumes
If you have always been attuned to paying Rs4000 per bottle for Gucci and Armani perfumes, this is not the time to splurge money. You need to put real checks on your spending habits as the more cash your conserve, the longer you will be able to sustain in a tough economic situation. Avoid instinctive shopping to the extent possible and focus on bare essentials till the time the economic crisis is behind. That may take 6-9 months but it makes a lot of sense to wait out that period.
Avoid high cost loans; in fact any type of loans
This is extremely important. If you are running large outstanding amounts on your credit cards or personal loans, you are asking for trouble. If cash flows become tighter, you could have a problem servicing these loans. The last thing you want in these testing times is the bank officer knocking at your door. Try to prioritize repayment of high cost loans and other things can wait. This is a problem that can rapidly compound when the economic situation worsens.
Be dispassionate about investment decisions
The previous five points were more reactive in nature. Here you are a lot more proactive. Being dispassionate is about looking at your long term financial plan from an opportunistic perspective. If the crash in equities has reduced your equity exposure from 60% to 45%, you must use this opportunity to enhance your exposure to equities at lower valuations. Of course, you can look to partially tweak your debt exposure to raise the requisite liquidity for investing in equity funds. Above all, don’t get carried away by the panic of the crowds. Look at past data and ask yourself, why you should not restructure in favour of equity funds at lower valuations?
Make the best of equity opportunities in the crash
If you have wished all your life that you will buy stocks in a crisis, this is the time. You don’t need to jump in and buy every stock that has corrected. But when quality stocks with a strong pedigree, solid financials and sound corporate governance correct in the melee, it is an opportunity. This is the time to populate your demat account with quality stocks at low prices. The index may have fallen by 30% but the damage to individual stocks has been much larger. Make the best of this valuation opportunity.
The shutdown is a reminder and an opportunity. Prepare a quick checklist so you can make the best of these challenging times.