After a year of the pandemic induced financial uncertainty,
it’s time to assess what you have lost and retained, and rejig your financial
plans accordingly
Countless people are confronting new financial realities a
year after the first of the Covid-19 lockdown announcements. The past year may
not have been equally difficult for all of us, but it has surely forced each
one of us to rethink our financial priorities. With a resurgence of cases in
many regions and vaccinations still in the early phases, the Covid-19 pandemic
is far from over.
The key is to figure out how quickly and effectively we can
adapt to the new financial realities without lowering our guard. Here are a few
useful pointers in this regard:
Contingency savings
Widespread job losses, pay-cuts and reduction in income have
unfortunately defined the past 12 months and many have not yet been able to bounce
back from the financial shocks of the pandemic. However, managing day-to-day
expenses despite major cash flow issues has been relatively easier for those
who had an adequate emergency fund.
As such, building a contingency fund that can sustain all expenses
(including necessities and debt obligations) for at least 6-9 months should be
everyone’s top priority. If you had utilised your emergency savings last year
and your income channels are now back on track, it’s time to focus on
replenishing your fund at the earliest.
Insurance protection
The pandemic has exposed our vulnerabilities like nothing
before and we must take steps to ensure our finances (and that of our dependent
family members) are not destroyed if something untoward suddenly happens to us.
So, having adequate life and health insurance protection in place should also
be one of our biggest priorities.
Management of loans
Many struggled to repay their loans during the past year.
The RBI announced several measures to relax borrowers’ debt-related stress, but
that hasn’t altered the fact that the loans still need to be repaid at a later
stage with additional interest in many cases. The pandemic has made us realise
that loans need to be managed in a disciplined manner to make them the great tools
that enable the fulfilment of our life goals.
Take steps like maintaining an adequate emergency fund for
debt repayment even when income channels get clogged, minimising unnecessary
loans and avoiding borrowing more than your repayment capacity. Consolidate
high-interest loans or move to a cheaper loan facility after due diligence,
avoid reckless usage of credit cards and ensure your credit score is always
above 750-800 by timely debt repayments to get the best loan deals in the
future.
Readjust your financial goals
The lockdown-induced cash flow issues forced many to live on
squeezed finances that impacted their savings and investments, which they had
made for achieving their financial goals. After a year, it’s time to assess
what you have lost and retained. Check your remaining savings and investments,
estimate your current savings rate and look for ways to boost your savings by
cutting non-essential expenses. You should also figure out which are the
financial goals you’ll be able to achieve now and consider downsizing some of
your low-priority goals to meet the crucial ones.
Rebalance your portfolio
Your investment portfolio structure may not be the same now
as it was before the lockdown. Your risk tolerance may have also changed
significantly. As such, you should now check whether your investment portfolio
is in line with the new realities and see if it’s excessively skewed towards a
particular asset class. If so, you can consider optimally diversifying your
investments to achieve the desired returns. Portfolio rebalancing can help you
in achieving your updated financial goals as per your current financial
capacity.
Stay invested
Many investment products had passed through an unprecedented
volatile market situation. However, the situation appears to be better a year
later. Many investors who had stayed patient and continued to invest are now
reaping rich dividends, whereas many others who exited their investments in
panic are now regretting their decision. The new reality is that investors
should focus on the long-term and aim to continue making regular investments in
line with their goals and risk appetite to earn good returns.
Click here for the
original article.