By Harshad Chetanwala
The extension of lockdown up to May 18 to strengthen the proactive steps taken to fight the spread of Covid-19 in India was anticipated by most of us. No doubt, all of us have wilfully accepted and agreed to the extension of lockdown because we cannot risk the health and lives of our family and our society. We are all equally aware that this decision is going to have a massive impact on the overall economy. And it may take months to revive. Already there are discussions going on this topic and most of us are wondering about the impact of this slow down on our personal lives and finances.
While we all wish the impact to be as minimal as possible, the scenario may not be the same for everyone. Usually such an unprecedented environment has an adverse effect on jobs and businesses, resulting in losses, salary cut, unpaid leaves, no increment, no bonus or as severe as layoffs or shut down. Any of these have a direct impact on our lives and financial wellbeing. While we don’t know the extent of the impact, what we can do is to be more prepared to take care of ourselves and our family.
Here are a few things that can help us prepare for tough situations mentioned above.
Events such as losses, layoffs, unpaid leaves and salary cuts also affect us mentally, particularly in case of business shutdown. Layoffs or unpaid leaves for a long time can leave us extremely demotivated. This is where our self-belief matters the most; our belief in our self, our attitude and our capabilities.
A shaken confidence or doubts on one’s own abilities can spoil careers and lead into more deeper problems. So, keep that self-confidence high and be more prepared to take up new challenges in future instead of losing yourself. The root cause of the issue is not us or our lack of our abilities, it something that none of us would have ever imagined where almost the whole world gets locked down; something which is beyond our control. Taking stress is natural but would not help, we utilize the time to equip ourselves with more skills, upgrade ourselves with new learnings and regain the lost ground much faster once things start improving.
During the challenging times, we need to be more disciplined. We need not just control our finances, more importantly we must control our emotions. We can create rules for ourselves and adhere to it till the environment improves. This can include our habits, hobbies and lifestyle. The idea of being disciplined is not to compromise, but be more adaptive. Try to keep it simple and economical for some time. None of us like to impose strict control on our self and our family, being proactive and taking necessary steps for self-control can prove very fruitful in future.
Rework on expenses
Prioritizing expenses to ensure minimal impact can be a useful strategy. Some expenses are unavoidable and cannot be deferred. Expenses such as food, medical and child related expenses can be our priority, whereas lifestyle expenses, EMI, insurance premium and investment can take a backseat in case of a tight budget for a few months. We may take advantage of the moratorium offered by banks for EMI, insurance companies for premium and investment companies for SIP to take care of our mandatory expenses. Lifestyle expenses can be completely avoided until our financial condition improves. It could be a good time to revisit our budget and allocate the budget for expenses that matters the most. This can also help in striking the right balance between necessity and luxury expenses in future.
If no contingency fund, use investments
The sole purpose of creating and maintaining a contingency fund over the years is to ensure we sail through tough times without much hassles. Typically, a contingency fund should have six months expenses in a bank account or liquid fund. In case of the availability of a contingency fund, we should use it for mandatory expenses. It is for days like these we maintain a contingency fund.
If you don’t have any contingency fund or run out of it, do not hesitate to withdraw from your investments to take care of your living expenses. The need of the hour is to sail through the financial crunch, we will be able to build the investment in future again. However, we must follow the curtailed budget discussed in the earlier point and withdraw from non-equity mutual fund investments first, if possible.
The idea is to prepare in case of any impact on our financial wellbeing because of cost control or downsizing and not to demoralize or get stressed. The reality is that things could get tougher in the coming days, but most importantly this has not happened because of our fault or inability, it has happened because of things that we cannot control. And like every difficult time in the past we had worked together and re-built teams, companies and the economy; we can work and build again in future too.
(Harshad Chetanwala is the Co-founder of MyWealthGrowth)