Last Updated on December 29, 2021 at 11:58 am
The economic impact of world-wide lockdowns and restrictions are too scary to contemplate. The pay cuts and layoffs have already begun even for government employees. This is a list of money management steps to survive the impact of the lockdown.
The following steps are applicable only if your salary is already reduced or is likely to reduce. If you have already been laid off or likely to be. Even if this is not the case, a broad health check of your finance during a time like this will not hurt.
1. An emergency fund is not enough!
Imagine losing your salary and being out of work for even one month. The EMIs have to be paid. The school fee has to paid (this is that time of the year!). The mandatory monthly expenses have to be paid and very pretty much everything is mandatory.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Typical emergency stashes will be about 3-6 times monthly expenses and do not include EMIs and the EMI moratorium is beneficial only to the banks. Time like now would require a lot more.
Depending on how your future income is going to be, an amount equal to at least six months expenses + at least 2-3 EMIs + school fee + a buffer for emergencies would be necessary.
This lockdown can impact jobs like never before and a corpus of at least 1-3 three years expenses would be ideal but near impossible for many.
If this means selling some stocks or mutual fund units or stopping SIPs or any other instrument go ahead and do it. If you have money in online FDs which can be liquidated instantly or funds in liquid or overnight funds it is fine too. For now, those get tagged under the emergency fund.
2. Get rid of short-term debt asap
Especially credit card due or any dues with double-digit interest rates. Again if this means selling some assets or even borrowing interest-free from friends or relatives it is any day better than struggling to repay with no income.
3. List and categorize investments
Liquidity is more important than returns. Our money should be accessible to us at all times. Every time there is a discussion about the NPS, someone would always say the lock-in would ensure discipline. That is not of much use if you cannot get money when needed.
The good old EPF is one of the most liquid fixed income instrument out there. One can withdraw from it after 2 months of a job loss but cannot touch your NPS unless you buy a pension with 80% of it! Going overboard on PPF accounts is also not smart. The full amount is not liquid.
Retirement plans can be recalculated and investment restarted later. This is a time for survival. Avoid ill-liquid products if your job is not secure.
List down all your investments. categorise them as “free to withdraw” and “locked-in”. Then prioritize items in the “free to withdraw” list. The tops ones would be the first to be redeemed.
If your “free to withdraw” list has an amount > or equal to at last one year’s expenses + 3 months EMI, you can breathe easy a bit.
Make a temporary adjustment to the asset allocation – reduce equity exposure and increase liquid fixed income exposure – old enough PPF account; EPF; FD; debt funds bonds etc. You can reset the allocation once the storm has passed.
4. List and categorize expenses
This the hard part – listing expenses that will have to stop if income is affected. Hard because family members will have to be understanding, especially the kids. This could be a good lesson in adjusting and adapting.
5. Life and health insurance
Ensure you have enough life insurance. Get yourself a private health cover. Paying for hospitalization with low or no income can be devastating. This free ebook on Health Insurance will help you choose a policy with ease!
6. Think of alternate income sources
The face of some businesses could be changed forever or at least years. It may be possible that your income may not return to past levels for a long time. While existing asset can service needs for a while, nothing comes close to another income source, however small it may be.
List your skills and which ones others would find useful and pay for. This video series and this article How to Make More Money In India: Forty real examples may be of some help.
Getting online to make money could work well for most young earners today but they will have to set small targets, put in the work to stay relevant and give it time.
We will have to cross the rest of the bridge when we get to it. A young earner (< 30) may not be able to pull off all the steps mentioned above. If they can reduce their debt burden and hold as much as cash as possible, it should be okay.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)