Use your money wisely during an economic slowdown

Today we are on the verge of global economic slowdown due to corona pandemic. No one was expecting this situation years back. Even if global as well India’s economic growth rate was declining nobody expected such an unexpected huge and sudden blow. The economic effect of corona pandemic can be divided into 2 levels one is MACRO level and another is MICRO level.

Effects happening on Macro-level can impact micro-level deeply. We can not change things at the country level or global level. That is policymakers’ and government’s job. We do not have control over it but we definitely have control on our own situation. We can manage or get prepared at a micro level to fight this financial crisis.

A Financial Crisis or economic slowdown is a situation where our future income is at stake but our mandatory expenses remain as it is. We run out of money or we fear that money by our side may not be sufficient until the situation changes for better. Corona pandemic gets us near to such situation. Some may fear of job loss, some fear for a salary cut, some fear for reduction or temporary halting in their consultation income and some fear for long term slowdown effect on their businesses. Everyone is going to be affected in a negative way, only the severity may be different for each individual.

In such case, we do not have any option but to FACE the situation with full determination and with a sensible mind. Following things can help us to sail through this situation

Access your financial situation: This is the most important step. It is a process of knowing your strengths and weakness to face the situation better. In this step check how much emergency fund you have, what are your mandatory and discretionary expenses, what are your near goals, which goals you can postpone, whether you have adequate insurances etc.

Analyze spending pattern in-depth: Experts always advise on analyzing our spends. Most of the time we do impulsive purchases and most of the spending we do is not essential. In the current situation, we have to segregate our each spends in Needs and Wants more seriously. Before spending even a single penny check whether it is an essential spend or discretionary.

Spend each rupee wisely: When we start segregating our spend in Needs and Wants we get a holistic picture. Even on essential spends, some expenses are fixed some are variable. Fixed expenses like kids education expenses, travel, medicines, insurance premiums, taxes, grocery, utility bills etc. You can reduce spend on some items like food and utility bills which come under fixed expense category to save more money.

Map your income and expenses with each other: This is a very interesting concept. To follow strict spending pattern you can map your income and expenses like this

Essential spending with regular in hand salary: All your essential expenses should be done from your take-home salary only. After this mandatory expenses, whatever money is left should be saved and invested for your future goals.

Use add on income for all discretionary expenses: Add on income such as rent, bonuses, interest and dividend income can be used for your extra expenses. This way we can restrict such expenses up to this add on income and can enjoy too.

Top up your emergency fund: This is a need of an hour. Experts suggest having 6 months of monthly expenses and EMI in an emergency fund. But in the current condition, I advise you to set aside minimum 1 to 1.5 years of monthly expenses, all your EMIs, all insurance premium and as well as mandatory yearly expenses as kids education. This emergency fund will be handy if some unfortunate event of job loss or reduction in earning happens.

Get standalone health insurance policy: Are you still relying on employer’s health insurance for your medical need? Then it is a risky situation. If you lose your job in future this cover will cease and you will be left with NO medical cover. Get your and your family’s health insurance as early as possible. Have adequate term insurance too.

Pay your high-interest rate loans: Once your emergency fund is set up your next target should be paying off your loans where you are paying huge interest. It can be credit card loan, personal loans and education loan too. In such a gloomy condition, it is preferable to be debt-free.

Invest in a staggered manner: Once your emergency fund is set up, you buy necessary insurances and pay off loans then part of remaining money can be used to top up your current SIPs. You can purchase solid and proven good businesses in a staggered way. Do not invest in one go in any share. Do not try to time the market.

Use the money to increase your professional skills: In this lockdown, you have sufficient time to increase your knowledge by reading. You can enrol to online training which will help you to increase and upgrade your professional skill. This new skill will make you salable in the job market if an unfortunate event of job loss happens.

Sit on the cash: After doing all above-mentioned things, still, you are left with some cash I advise you to sit on this cash until things start changing for better. Keep this cash handy by parking it in some liquid fund. It will give you mental peace and strength to fight with dark clouds ahead.

This current situation is not caused because of the financial crisis. It is a health crisis which will lead us to the financial crisis. Our main focus is to be safe from COVID 19. Keep your mental and physiological health strong. Have faith in Almighty and be optimistic.

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