The scare of COVID has emerged more potent in the second wave past couple of months. It is important not to panic and make knee jerk reactions in financial matters as it can cause long term damage to your financial goals. Masks and social distancing can help in COVID-proofing your physical health. Similarly, some small financial actions can help COVID-proof your financial health too. In this article, we share some easy tips on how you can COVID proof your financial life.
1. Re-look at your contingency fund:
Allow the pandemic to force you to re-look at your contingency fund. Instead of 3-6 months of expenses, try and beef up the contingency fund and have at least 6-12 months of expenses. Invest in a mix of bank fixed deposits and liquid mutual funds. Also, explore options to tap money at low cost (as compared to a credit card). Keep spouse informed on how to access the money on an emergency basis. Keep a couple of credit cards and ready cash at home handy in case of hospitalization requirement.
2. Evaluate your medical insurance cover:
Many people forget about increasing their insurance coverage after buying the insurance policy. Now is the time to re-look at the policy and the coverage. If coverage is more minor, try to buy a top-up policy to bridge the coverage at a minimal cost. Also, check if your employer provides group health insurance coverage. In case of hospitalization, see if the cashless claim option is available. This will save your family from a significant financial outgo in the initial hospitalization stages. Do keep the contact details of your insurance advisor handy if there is any issue/delay in processing your insurance claim.
3. Re-look at your financial goals and investment plans:
Regarding long-term goals, do not panic and do not make any significant change in those plans. However, some tweaking may be necessary for short term goals. See if you can knock off discretionary goals like international vacations or big houses, or new LED TV. For non-negotiable goals like down-payment of home loan for a new flat, see if you can postpone or reduce the money requirement. All these actions will free up money to beef up your contingency fund.
4. Check your Asset Allocation:
The equity markets have not fallen that much in this second wave as compared to the first wave. However, it is still essential to check the asset allocation for various goals. Don’t make any significant alterations in the asset allocation for long term goals. However, this is the time to liquidate equity and move to debt if the allocation towards equity has exceeded your ideal allocation. Check your short-term financial goals and try to liquidate any equity exposure to those goals. Also, take this as an opportunity to prune your portfolio and get out of non-performing investments.
5. Evaluate your income and expenses:
Let this crisis allow you to re-look at your expense patterns as well. Identify avoidable expenses and take action to cut down on them. Do it as a focused exercise and have an expense reduction target in mind, say 20%. Close any OTT and magazine subscriptions that you don’t watch or read. Don’t forget to involve your family and get their buy-in while making these decisions.
6. Explore a backup plan for your fixed-income job:
The economic slump due to this second wave is causing massive layoffs. This is especially in mid and small-tier companies that do not have sufficient financial firepower to sustain in these times. As an employee, if the salary is your only source of income, it is time that you explore a backup plan if you lose your job today. There are many freelancing opportunities and small business ideas that you can explore as a backup plan.
7. Prepare a family financial black box:
Banks and insurance companies hold much-unclaimed money, precisely because the people who invested in their products did not care to inform their family members. Don’t let this happen to you. Take a simple sheet of paper (or open an excel sheet) and make a list of all your investments, insurance policies, important people to contact in case of emergency. Make nominations wherever they are missing. Make your spouse and other family members go through and add their investments also. This document will be of immense use to surviving family members and save them from the hassle of locating the investments.
8. Evaluate your life’s priorities and invest in yourself:
Last but not least, use this time to take a break from the business of life to do some soul-searching. Write down your life’s purpose. If you died today, what will you miss? What did you not get to be? Use your imagination and write down your life’s mission statement. Then use it to find out what changes you need to bring or new skills you need to learn. There are so many free and low-cost online courses available that you can explore and benefit from in these times.
Like an earthquake whose tremors are felt for many days after the earthquake, the impact of COVID can last for many years. Some proactive steps today can help you COVID proof your finances. Take it as a challenge and adapt to the changed situation. Do take care to Involve your family in all your decisions.
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