If you are new to managing money, it is important to establish your compulsory expenses first and then budget the rest.
With the increase in income and the economy thriving, it is only natural for your spending to increase. However, with the economy at a standstill with Covid-19, the previous spending habits continue.
Gaurav Jalan, CEO and Founder – mPokket says, “The first financial lesson from the lockdown is to reign in your spending. This may mean making a budget every month and cutting down on lifestyle goods consumption.”
If you are new to managing money, experts suggest it is important to establish your compulsory expenses first and then budget the rest.
Build an Emergency Fund
The unprecedented situation of the pandemic was beyond imagination for everyone across the world. Pandemic taught us that only an emergency fund can bail you out in times of medical or any other emergency, especially when your income is already impacted.
Jalan adds, “It is advisable to save at least 3 months’ worth of living expenses including your EMIs, in form of a liquid investment or deposits in your savings bank account. The key is to have enough and adequate access to liquid funds.”
You could start with setting aside smaller denominations of contributions first so as to not abandon the plan altogether. Experts say one should get the basics in place by separating one’s emergency account from one’s spending account. Make sure to not over save as emergency funds are often stored in low yielding options.
Once you achieve your corpus, divert your monthly savings to a different account or investment option for a better return.
Diversify your investments
With the volatility in the markets, one should make sure to well diversify their portfolio. For investors seeking to stay invested long term, investing during a market downturn can reap the maximum benefit.
According to experts, you should hire a financial advisor who understands your investment goals, commitment time, and risk appetite, and can help you plan accordingly.
Jalan explains, “One can start investing in a mutual fund through nominal systematic investment plans (SIPs). This is the best way to average out your cost of investing while benefiting from the compounding.”
He adds, “It is also important to take note of the risk associated with the mutual funds as they are subjected to the market, and the exit load.” You can also park your surplus funds in a fixed deposit or a liquid mutual fund scheme.
Adequate health insurance for you and your family
The fear and uncertainty of contracting Covid-19 made many people re-evaluate their existing health insurance policies.
Jalan points out, “It is a norm in India to rely on the insurance provided by their employer. Often such group health insurance is insufficient and it also lapses once you leave the organisation.”
Thus, it is imperative to buy health insurance of up to Rs 5 Lakh as an individual or at least Rs 12-15 Lakh floater insurance for a family of four.
Negotiate with your lender on your loans
Revisit your loan terms from time to time, and ask your lender for a better rate if possible. Experts say, handling debt internally and negotiating better rates with your existing lender saves you the cumbersome process of documentation and the other charges involved while getting on board with a new lender.
According to Jalan, you may consider a balance transfer option but make sure to move to a bank with a lower interest which makes your financial life better. “Charges to be kept in mind while switching home loans are processing fees, mortgage deed, and legal fees amongst others,” says Jalan.
With a little change in our lifestyle and habits, one can save regularly and be emergency ready. He further adds, “Lastly, the lockdown has taught us the importance of being up to date with the digital modes of payment and investing.”