Ever since Covid-19 hit, it changed our lifestyles, our thought process, our outlook, approach and indeed the whole scenario drastically across the globe. It can be considered as a wake-up call to ensure things related to money and finances are properly provided for. From maintaining an emergency fund, earmarking funds for long-term goals, keeping adequate risk coverage to having proper nomination, make sure you and your family is financially secure for pandemic situations.
1. Emergency Fund
It is indispensable to have an emergency fund as bad times never come giving prior notice. Given how uncertain the times are, you can no longer afford to exhaust your monthly income without saving anything for the future. Having an emergency fund ensures that you don’t have to ask for others’ help during an emergency like hospitalisation, job loss or a pandemic-like situation.
When an emergency arises suddenly and you are not financially prepared to meet that situation then either you have to take a loan from friends and relatives or from a bank. But if you have an emergency fund you don’t have to ask for others’ help in difficult situations. It also saves you from breaking into your investments such as equity mutual funds, shares or long-term investment products that have been done with an objective to meet a particular long-term goal.
The size of your emergency fund will vary depending on your monthly expenses, your loan EMI, income and dependents. According to financial experts, it is ideal to have an emergency kitty worth six to nine months of monthly expenses. If you have still not put in money for an emergency corpus, you need to start now.
2. Make a Budget
If you don’t know exactly how much money you have coming in and going out each month, you won’t know how much money you need for your emergency fund. And if you aren’t keeping a budget, you also have no idea whether you’re currently living below your means or overextending yourself. A budget is not a parent it can’t and won’t force you to change your behavior but it is a useful tool that can help you decide if you’re happy with where your money is going and where you stand financially.
3. Adequate Health Cover
Having adequate health insurance is the first step towards managing risks. Medical inflation has always been above regular inflation and the cost of hospitalisation owing to Coronavirus has pushed it up further. Buying individual health covers or family floater plans along with critical illness plans is very necessary. If you already have health cover, enhance coverage by opting for a top-up or super top-up plan.
4. Investing For Long Term Goals
The ideal way to save for long-term goals is to divert a portion of income towards them before spending. Identify your goals and then earmark funds towards them preferably though equity-oriented investments such as equity mutual funds. The better way is to keep investing through SIPs and link them to your long-term goals.
5. Closely manage your Bills
There’s no reason to waste money on late fees or finance charges, yet families do it all the time. During a job loss crisis, you should be extra studious in this area. Simply being organized can save you a lot of money when it comes to your monthly bills. One late credit card payment per month could set you back $300 over the course of a year. It could even get your card canceled at a time when you might need it as a last resort.
Set a date twice a month to review all your accounts, so you don’t miss any due dates. Schedule electronic payments or mail checks so that your payment arrives several days before it’s due. This way, if a delay occurs, your payment will probably still arrive on time. If you’re having trouble keeping track of all your accounts, start compiling a list. When your list is complete, you can use it to make sure you’re on top of all your accounts and to see if there are any you can combine or close.
6. Keep Up With Routine Maintenance
If you keep the components of your car, home, and physical health in top condition, you can catch problems while they’re small and avoid expensive repairs and medical bills later. It’s cheaper to have a cavity filled than to get a root canal, easier to replace a couple of pieces of wood than to have your house tented for termites, and better to eat healthy and exercise than end up needing expensive treatments for diabetes or heart disease. You might think you don’t have the time or money to deal with these things on a regular basis, but they can create much larger disruptions of your time and finances if you ignore them.
7. Record your Investments
Maintaining a proper record of your investments is a crucial part of your investing journey. Make sure you have insurance policy documents and statements related to mutual fund investments stored in a place accessible to your family members. Along with bank details, your family members need to be aware of all your investments and insurance plans so as to avoid any last-minute running around.
8. Cut Unnecessary Expenses
After you figure out where you’re spending money, start looking for ways to cut expenses. By doing this, you’ll be able to save that money for emergencies. While it’s a common suggestion to cut out your weekday coffee, this isn’t going to make your savings rate skyrocket. Instead, consider the following to start cutting expenses:
- Purchase generic brands when possible (including prescription drugs)
- Cut your cable (we all have Netflix anyways)
- Cancel any subscriptions you don’t use
- Consider whether you need a gym membership or can find ways to exercise for free
9. Work to Pay off Debt
Debt can pile up quickly, especially high-interest debt like credit cards. According to the Federal Trade Commission, if you charge $1,500 on a credit card with a 19% interest rate and pay the minimum amount due each month, you’ll end up making 106 payments. The worst part is you’ll have paid $889 in interest. That’s money that could have been a buffer for a personal financial crisis.
Create a debt payoff plan for things like credit card balances, student loans, personal loans, and auto loans so you can get that money back in your own pocket. Start by paying off the high-interest debt (most likely credit card debt) first. While you pay off one debt, don’t forget to make the minimum payments on ALL debts to protect your credit and keep your accounts in good standing.
10. Automate Savings
It’s hard to prioritize savings, but we all know it’s a necessity to prepare for a personal financial crisis. The easiest way to make sure you save money every month is to automate it. For example, if you get paid on the 1st of every month, you could request a recurring transfer from your checking to a savings account on the 4th of every month. Note: Make sure this transfer amount is in your budget so you don’t overdraft the account.
You’re going to be tempted to dip into your savings, but you should really stay out of it unless a money crisis hits. To create obstacles for withdrawals, keep your savings at a different bank or credit union. We suggest you look into a high yield savings account or a money market account (MMA) as a place to keep your emergency fund. Both of these accounts offer a higher interest rate than standard savings accounts at your bank. Wherever you choose to keep your savings, leave the money alone unless you’re in a personal finance crisis.