Every paisa matters

The pandemic has had an adverse effect on the economy, with millions coping with financial uncertainty. Months later, most people are still recovering from its impact and finding their feet.

Unfortunately, one doesn’t know how long this “new normal” will persist or if something similar will occur again in this lifetime. The best one can do is being prepared and remember that every adversity is also an opportunity. Experts list the financial lessons that we could all learn from the pandemic.

Rethink emergency funds


Almost every financial expert advocates having an emergency fund. Till the pandemic struck, the base recommendation was having at least three to six months of living expenses set aside. It covered any period of unemployment and prevented you from reaching for your credit card at the first sign of a major expense. “But the world we are living in at the moment is uncertain. Employment opportunities are few and companies are continuing to lay-off staff. Even if you survived the first round of lay-offs, you never know what the future holds. So if you have emergency fund, steadily work towards building it as large as you can,” says Chandrakala M, former banker and independent investment consultant. “This is important if you have irregular income or would find it difficult to replace your income if you suddenly lost your job.”

Don’t spend much


Job cuts, lockdowns and businesses closures cajoled us all into delaying major purchases — a car, a home or that swanky home entertainment system. “The pandemic has forced us to re-evaluate our needs and wants. We’ve understood the importance of living within our means. We’ve also learnt that there is nothing wrong with delaying purchases if they aren’t absolutely essential and can help us improve our current financial situation. The money saved can be used to extend the emergency fund and make it last longer,” says Chandrakala M.

Have a back-up health insurance policy


Many people lost their jobs due to the pandemic. If you or a family member needed to be hospitalised under such circumstances, it meant having to pay out of your own pockets. “Purchasing the right health insurance can safeguard an individual from unforeseen medical expenses such as ambulance costs, hospitalisation expenses, lab tests depending on the policy’s features. It is paramount to have a health insurance policy that suits individual needs and not depend on generic corporate policies for employees as they may not cover specific needs, offer the coverage amount you need or allow the inclusion of family members,” says Kuonal Lakhapati, co-founder and CEO of 23BMI, a healthcare venture.

Don’t ignore nomination formalities


The world as you knew it has changed. Now is great time to sit down and review your financial situation. You may also want to check if all your nomination details are in place and updated to tide you and your family through any emergencies. This is especially true in case you own insurance policies.

“The probability of a medical emergency has increased. The right health insurance plan can protect the individual from financial burden. It is also vital to ensure that nominee details are mentioned so that family members do not miss out on its benefits. The nominee of the insurer would also be the beneficiary of the entitled amount in case of death of the insurer (depending on the policy chosen),” says Lakhapati.

Avoid taking on debt


The current economic turmoil is bad for everyone, but it is worse if you have racked up high-interest credit card debt, or have loans or EMIs that are eating into your limited finances. The lesson to learn is to avoid getting yourself into such a vulnerable position in the future. This means re-evaluating your budget and financial plan. “Pandemic or not, the simple rule of borrowing is do not spend more than what you can afford. It is also advisable to apply for a loan that can be easily repaid. Always keep a few factors in mind: borrow only if required, make sure that the EMI is affordable and ensure regular repayment. Be vigilant about monitoring your credit report and credit score, and ensure that your banks report the data correctly as a mistake can hurt your credit rating,” says Sathya Kalyanasundaram, country head and managing director, Experian India.

Have more than one source of income


Most people realised the importance of having multiple sources of income only when they lost their regular stream of income. A good way to ensure that this never happens again is to set up a part of your portfolio to generate regular income. “This portion could be invested in income-paying assets such as fixed income bonds, high dividend stocks, real estate investment trusts, infrastructure investment trusts, rent-generating real estate assets,” says Prateek Pant, head of products and solutions, Sanctum Wealth Management. “But what portion should be put in income-paying assets depends on the investor’s age, number of dependents, necessary vs discretionary expenses, risk appetite and understanding of financial markets.”

Spread your investments to mitigate risk


No asset class consistently performs across time periods. They perform well at different times, so having a diverse portfolio means ensuring your risks are covered. Take gold as an example. “Over the last one year, gold has been one the best-performing asset classes, delivering 40 per cent + returns. Similarly, Indian fixed income returns have outpaced equity returns over the last five years. Depending on an individual’s personal goals and risk profile, we suggest that investors begin to diversify across asset classes. It’s also critical to rebalance these portfolios on a regular basis or when there is any change in circumstances,” says Pant.