Topic 1: Six ways in which you can protect yourself financially amid the lockdown
What to do during thing period as your financial security?
Many people are facing the cuts in their salaries ranging from 20% to over 55%. Several people whose bonuses were announced are not going to receive them due to the cost cutting initiatives of their employers. And, yes, there are some who are continuing to receive the revised salaries with increments and bonus. What you are going through financially as an employee, is a function of what industry your company belongs to and the impact it is facing due to Covid-19.
Given the uncertainty around us, how do we make this crisis work for us in order for us to feel financially safe in the future. Here are some suggestions:
Your emergency fund comes handy now: Remember you had always maintained it for a job loss emergency. Now is the time that this corpus will bail you out until you find your next employment opportunity. And if you have been fortunate enough not to lose your job, then ensure you are not eroding this corpus on any discretionary expenses. It is indeed meant for a job loss emergency and should always be kept that way. Keep this money in the least risky financial asset, preferably liquid or ultra short-term debt fund where your tax liability is the least in case your holding period ends up being more than three years.
Your insurance review becomes more important now: Being in a lockdown should give you ample time to review your cover. If you have not taken life insurance and/or health insurance, go for it now. No other event can teach you the importance of taking these covers more than this one. If you already have them, please ensure you have a personal insurance plan for life and health as well. Your current job may not be around and the new employer may not have as good a cover as the previous one. One must ensure that the policy covers events like Covid-19.
Track the spending and investing habits: Are you getting the time to track your expenses and see how much has been cut down due to the lockdown? This time at home should also give you a chance to categorize your living expenses in two boxes—“nice to have" and “must have". Sit with your spouse and take stock of how you would like to control your living expenses keeping in view your financial goals and uncertainty around the job and economic situation, and then fill in your expenses in these two boxes. Please note that the time spent with your spouse is very crucial even if he/she is not as much into money management as you would like him/her to be. She/he can bring a completely fresh perspective to the exercise that you have planned to do.
Don’t rejig the portfolio for long-term goals: Your portfolio should not be rejigged unless your goals are due in the next two-three years. The importance of moving money out from risky assets when the goal is due can’t be overstated. Any goals that are due before 2024 must have their corpus invested in debt funds that are least risky and will bring tax-efficient returns while protecting the capital. Any money for goals that are due after 2024 can be invested in index, large-cap, multi-cap and mid-cap funds, depending upon your investment horizon.
Learn to live with the uncertainty around us: Uncertainty is always a part of life. Given the economic crisis, one should seek professional help to protect the capital first and then invest to create tax-efficient returns. The part of the portfolio that generates inflation-beating returns should come only after the first two criteria have been met. Every downturn is followed by an upturn. We have seen it many times. Why would it be different this time? So be positive and hang in there. Focus on things that are in your control rather than worrying about what’s not.
Be aware of your behavioural biases: You might be terrified or over-confident of your investing decisions. You might be taking a lot of decisions yourself without consulting an expert on the impact they may create. You might be a top performer in your organization with a lot of cognitive biases when it comes to your money management skills. Whatever the case may be, you must engage a professional to validate your decisions. Be conservative to begin with. Do a lot of research before making changes in your portfolio and do not give in to impulses even though your decisions paid off well in the past.
If the change around you is making you anxious, focus on the present. Be grateful and support the people who are not as fortunate as you are.
Many people are facing the cuts in their salaries ranging from 20% to over 55%. Several people whose bonuses were announced are not going to receive them due to the cost cutting initiatives of their employers. And, yes, there are some who are continuing to receive the revised salaries with increments and bonus. What you are going through financially as an employee, is a function of what industry your company belongs to and the impact it is facing due to Covid-19.
Given the uncertainty around us, how do we make this crisis work for us in order for us to feel financially safe in the future. Here are some suggestions:
Your emergency fund comes handy now: Remember you had always maintained it for a job loss emergency. Now is the time that this corpus will bail you out until you find your next employment opportunity. And if you have been fortunate enough not to lose your job, then ensure you are not eroding this corpus on any discretionary expenses. It is indeed meant for a job loss emergency and should always be kept that way. Keep this money in the least risky financial asset, preferably liquid or ultra short-term debt fund where your tax liability is the least in case your holding period ends up being more than three years.
Your insurance review becomes more important now: Being in a lockdown should give you ample time to review your cover. If you have not taken life insurance and/or health insurance, go for it now. No other event can teach you the importance of taking these covers more than this one. If you already have them, please ensure you have a personal insurance plan for life and health as well. Your current job may not be around and the new employer may not have as good a cover as the previous one. One must ensure that the policy covers events like Covid-19.
Track the spending and investing habits: Are you getting the time to track your expenses and see how much has been cut down due to the lockdown? This time at home should also give you a chance to categorize your living expenses in two boxes—“nice to have" and “must have". Sit with your spouse and take stock of how you would like to control your living expenses keeping in view your financial goals and uncertainty around the job and economic situation, and then fill in your expenses in these two boxes. Please note that the time spent with your spouse is very crucial even if he/she is not as much into money management as you would like him/her to be. She/he can bring a completely fresh perspective to the exercise that you have planned to do.
Don’t rejig the portfolio for long-term goals: Your portfolio should not be rejigged unless your goals are due in the next two-three years. The importance of moving money out from risky assets when the goal is due can’t be overstated. Any goals that are due before 2024 must have their corpus invested in debt funds that are least risky and will bring tax-efficient returns while protecting the capital. Any money for goals that are due after 2024 can be invested in index, large-cap, multi-cap and mid-cap funds, depending upon your investment horizon.
Learn to live with the uncertainty around us: Uncertainty is always a part of life. Given the economic crisis, one should seek professional help to protect the capital first and then invest to create tax-efficient returns. The part of the portfolio that generates inflation-beating returns should come only after the first two criteria have been met. Every downturn is followed by an upturn. We have seen it many times. Why would it be different this time? So be positive and hang in there. Focus on things that are in your control rather than worrying about what’s not.
Be aware of your behavioural biases: You might be terrified or over-confident of your investing decisions. You might be taking a lot of decisions yourself without consulting an expert on the impact they may create. You might be a top performer in your organization with a lot of cognitive biases when it comes to your money management skills. Whatever the case may be, you must engage a professional to validate your decisions. Be conservative to begin with. Do a lot of research before making changes in your portfolio and do not give in to impulses even though your decisions paid off well in the past.
If the change around you is making you anxious, focus on the present. Be grateful and support the people who are not as fortunate as you are.