Steps to minimize the impact of the pandemic on your finances

It has been over a year since the pandemic first started but the current situation seems like a cruel replay of all the suffering the world continues to endure due to Covid -19. 

The situation has resulted in wide-spread panic as many cities in India are currently under lockdown or curfew. While we cannot control every aspect of  the ongoing situation, we can take certain steps to minimize its impact on our lives and one of them is through proper financial management. Therefore, we have put together a guide on how you can manage your finances effectively in the ongoing situation.

Essential Financial Steps for the Ongoing Situation

• Review Current Spending and Expenses

The first step is to take a look at all your spends and segregate them based on essential and non-essential expenses. Essentials include food, medicines, electricity, water bills, etc. Your mortgages, debts, investments, and other similar spends may come under this category. Non-essentials include subscriptions to magazines, entertainment portals, etc. 

Additionally keep an eye on your automatic withdrawals as you may be surprised to see how much you are spending on items or services you are not using regularly.

Review all your expenses and find out where you can cut costs.

• Create a Revised Budget

The next step is to create a revised budget based on your findings from the previous step. Cut down on unnecessary spending and use the saved amount towards building your emergency fund or to purchase essential commodities (avoid hoarding food or medicines), and take strict cost cutting measures. 

Additionally, find ways to cut costs, for example, if you wish to continue with certain subscriptions, instead of paying the full amount, find out if you can downgrade to a cheaper plan or if your provider can give a discount. 

You may have also saved on expenses such as travelling which can again be utilized efficiently. In case there is a variation in your income, the above step will also help you tide over the situation.

• Prioritize Health and Life Insurance

It goes without saying that taking care of one’s health and having an insurance plan in place is of utmost priority especially right now. Try not to compromise on your insurance premium payments. If you do not have an insurance plan in place yet then it is essential to go for one with a coverage of at least Rs. 5 lakhs at the earliest to avoid getting burdened by steep hospital bills in the future.

Additionally, certain term insurance plans provide COVID relief riders as well and this can be availed by paying an additional amount on your original premium.

• Continue with your Investments

If you are investing in FDs, RDs, or mutual funds, try your best to not discontinue these payments as they will be helpful if you need financial assistance or are going through a cash crunch. You could discontinue those that are not relevant or important for the time being. Additionally, you could also pause payments if you are investing in SIPs for example until your financial situation improves. 

• Build your Emergency Fund

Ideally, an emergency fund contains an amount equivalent to at least 3-6 months of your regular income and in times like the present, an emergency fund will be a boon. In case you are just starting out, do not worry, start small and continue to grow the same over time. For example, you can use the amount that you saved after cost cutting measures (from steps 1 and 2) and divert it to your emergency fund. 

Additionally, another option available is to avail a personal loan that comes with affordable rates and use that for your emergency fund. You can repay the amount over time through affordable EMIs, making the process easier on your existing financial situation as well.

In Conclusion

The situation that we currently find ourselves in is enough to make anyone panic but we can only overcome it with strength and optimism along with disciplined management. Taking responsibility for our behaviour as well as our finances as much as we can is equally important.

Apart from this, stay indoors as much as possible, practice social distancing, and wear a mask at all times.

We hope that all of our readers are safe and healthy and continue to stay so. This too shall pass.