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The ongoing lockdown is the new normal in our lives. As the country fights to keep the dreaded Covid at bay by staying indoors, the spending habits of households are undergoing a change. With little opportunity to spend, except on basics, many are finding out what actually construes necessities and what were purely discretionary expenses masquerading as essential costs.
The current situation has also taken a toll on the economy. With the prospect of job losses and slashed salaries very real, we focus on six steps every individual needs to consider to navigate these extraordinary times. From conserving cash to dealing with possible loss of income, from eliminating debt to making an inventory of assets, from learning something new to steering clear of pitfalls, we tell you how you can tide over this time with minimum pain.
1. Be careful with cash
With no malls to go shopping to, no restaurants to eat out in, no fuel bills to take care of and no scope of online shopping, the lockdown would have seen your monthly household expenses nosedive. Treat this period as a rehearsal in frugal living. No one can predict with any certainty when life will be normal again. With the economy taking a huge hit, the spectre of job losses and pay cuts appear too close for comfort.
As a rule, one should have at least six months’ of monthly expenses secured in an emergency fund precisely for uncertain times like these. “The utility of this contingency fund is only realised during such times. If you don’t have that kind of corpus, it’s very important to cut back on expenses and keep money aside to meet non-negotiable expenses,” says Prableen Bajpai, Founder and Managing Partner, FinFix Research and Analytics.
The first step would be to put all discretionary spends on the backburner. “Keep the expenses at the minimum as if it is an emergency. Conserve the bank balance. For as long as needed,” says Uma Shashikant, Chairperson, Centre for Investment Education and Learning. Every little expense cut down on is that much saved. Even during the lockdown, resist the temptation to order food online. Cooking basic meals from scratch at home is not only cheaper but safer too. Take this opportunity to review and prune myriad paid subscriptions. Hold on to only those you use regularly. Unsubscribe from the rest.
2. Brace for the pink slip or a pay cut
With production and consumption grinding to a halt, multiple sectors are facing rough weather. This translates to troubled times for those working already and those looking for employment. According to Devashish Chakravarty, Founder and CEO, Quezex.com, threats for employees include job loss, pay cuts and delayed salary. It can also mean partial deferred pay, cancellation or deferment of performance bonus for the previous year and conversion of fixed salary into performance based variable salary. Job seekers may have to deal with cancellation of interview, delay in interview and feedback, renegotiation of job offer, delay in joining date and cancellation of job offer.
Employees who have been furloughed/ fired should, first take solace that they have been victims of collateral damage and this turn of events is not due any innate shortcoming. “Prepare by budgeting for substantial or complete loss of income. Cut living costs, explore alternate personal income sources, continuously reach out to the market and network for new opportunities,” is Chakravarty’s advice.
While it is good to be prepared for the worst, the outcome may be different. “Whether or not this will come to pass, depends on how this pandemic ‘ends’ and the subsequent appetite for reverting to the ‘old normal’. It may so happen that we will find equilibrium at some lower level for a few quarters, as everyone digests the impact of something so novel and pervasive,” says Jayant Pai, Head, Marketing, PPFAS Mutual Fund. For some, new opportunities may appear. “As businesses try to cut costs, there would be a demand for freelancers and consultants,” says Dhirendra Kumar, CEO, Value Research. Keep your ears to the ground for such opportunities.
Also read:
Saving is important but so are these 5 expenses
3. Deal with debt
Shun debt like a disease. Do not borrow, even from friends and relatives,” says Shashikant. It might be a good idea to lock up your credit cards for a while and make all payments in either cash or by debit card. In most cases, it’s not a home loan that creates a problem, but the personal loans, credit card bills or borrowings which throws one’s personal finance off balance.
“The first step to avoid and eventually eliminate debt starts when one stops to create more debt,” says Bajpai. If there are too many high cost loans to be serviced, you can consider liquidating certain assets, even if those assets were earmarked for long-term goals like retirement. “It is recommended to liquidate low yielding investments like bank FDs or debt mutual funds to pay out high cost debts,” says Raj Khosla, Founder and Managing Director, MyMoneyMantra.com.
Remember, liquidating assets to pay off debts is recommended only if you find it difficult to pay EMIs and the interest cost of debt is higher than returns you are earning on your investments. “One should never indulge in panic selling of stocks and equity funds or booking losses in haste. Wait for things to settle down before taking decisions,” adds Khosla.
4. Upskill to stay ahead
As you work from home, look for ways to learn new skills online and revamp your resume. In the long term, once the lockdown is over and the economy is on the path to recovery, look at classroom based skilling, formal certification, on-the-job training via internships and accepting additional roles in the organisation, says Chakravarty.
Upskilling can be vertical, lateral and unrelated. In the first option, you pick up additional or advanced skills related to your current line of work. In the second option, you learn skills adjacent to your line of work where you can train to perform dual roles. Unrelated learning will increase variety of jobs you can apply to with a view to changing careers when possible.
5. Take stock of your assets
Don’t speculate Now would be a good time to make an inventory of your assets, should you need to liquidate these if your financial situation takes a turn for the worse. “In general, one ought to keep two to three months’ salary in liquid assets (excluding equities) precisely to meet contingencies like the current one,” says Pai. Before liquidating, reassess your expenses and make these leaner as far as possible by eliminating unnecessary expenditure heads. As far as your EPF corpus is concerned, withdraw with care. “Take out only a reasonable part of it if you have to. Be aware of your temperament and the tax implications,” says Kumar. According to Pai, dispose of assets in order of liquidity. Bank deposits or liquid or gold funds first, followed by gold, stocks and real estate. “In the current market scenario, selling off gold funds would yield the best value. Consider liquidating fixed return products and lastly equity funds in case of extreme emergency,” says Khosla.
6. Don’t speculate
This is not the time to speculate or gamble. Kumar warns against any kind of knee jerk reactions. “Don’t rush into invest and don’t rush out of investments either. Have a plan in place and don’t forget the basic principles of investing,” he says. Pai advises against fire-sales of illiquid assets like real estate, without exhausting other options. “Do not blindly purchase equities, merely because prices are more attractive now. Heed the warning of banks and do not fall for moratorium scams.
Lastly, do not fall for any fancy job-related promises made by agents,” he warns. As an investor, be wary of following unsolicited advice from unauthorised sources such as short messages and social media. “Continue investing as per your pre-defined goals and refrain from timing the market,” says Khosla. Be particularly careful with any big ticket purchases. Do not fall for tricks and cons aimed at milking the crisis. It makes sense to lie low for a few months. As Pai says, “This is something we have not experienced before and may drag on for some time. Such times call for fortitude, and not bravado.”
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