The lockdowns imposed to include the surge of Covid-19 infection have brought on widespread financial disruptions due to closure or suspension of company activities in a lot of organisations – from tiny and medium enterprises (MSMEs) to larger businesses. As a outcome, a lot of people today are facing economic hardship soon after job loss or salary reduce – in some situations stoppage of complete salary payments.
To deal with their finances in the course of such uncertain occasions, one should really comply with the most fundamental items of economic preparing.
Emergency Fund
The initially step to deal with such a scenario is constructing an emergency fund. One should really retain adequate amounts necessary for at least six months in liquid type – money, savings bank deposit, breakable fixed deposit (FD), liquid/quick-term fund and so forth – so that the particular person may possibly sail via a crisis period devoid of significantly hardship.
“As the nation grapples with the second wave of Covid-19, many people are left worried about their personal finances once again. In order to be prepared for such unprecedented circumstances, it is important to maintain an emergency fund that can cover at least three to six months of basic necessities such as food, rent, and monthly utility bills,” mentioned Raghuvir Gakhar, CEO, Computer Financial.
Insurance Cover
Insurance is the most crucial instrument that gives economic cover against unforeseen eventualities. Individuals should really take life insurance coverage to assure protection of their financially dependent family members, as effectively as overall health insurance coverage to shield their savings in case of enormous economic burden in the course of hospitalisation.
“The current health crisis has also highlighted the need for quality health and life insurance that offers broad coverage,” mentioned Gakhar.
Credit Score
In case of absence of sufficient emergency fund and/or insurance coverage cover, a particular person may possibly need to have to take some loan. To get a loan at a reduced interest price, one should really keep a wholesome credit score. For this, timely repayment of current loans and credit card dues and so forth have to be carried out. Apart from loan, one may possibly also opt for a credit line to assure speedy availability of cash on credit up to the set limit.
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“In order to have some cash liquidity, it is also advisable to maintain a good credit score because, in case of the need for cash, it will help you access pre-approved loans,” mentioned Gakhar.
Long-Term Loans
The existing low interest regime may possibly prompt you to obtain extended-term assets like vehicles, AC and so forth on credit, as effectively as immovable assets like home. However, taking a extended-term loan creates an obligation of spending future earnings to repay the loan. In case of loss of earnings due to some emergencies like Covid pandemic, it aggravates the economic hardship. So, it is far better to stay clear of unnecessary purchases on credit to lower future economic burdens.
“Another concern is the purchase of immovable assets due to low-interest rates. The decision should be taken after considering both the short-term and long-term impacts of the pandemic. Last but not least, it is vital to maintain a healthy debt to income ratio and not splurge on future earning potential,” mentioned Gakhar.