Personal Finance

Don’t let Covid ruin your finances

Parvatha Vardhini C | Updated on August 02, 2020

Avoiding fresh debts and reining in spends are among top money mantras

In these testing times, we must take care of our financial health as much as we take care of our physical and mental health. Today, we are at a time where our incomes have shrunk or are stagnating, returns on safer investment options are poor, and where expenses have the potential to eat into our savings if we do not manage money wisely.

Here are a few tips to win the financial battle against the virus.

Save more

If you have a good balance in your savings bank account, it’s time you make that money work more for you. Gone are the days when some banks offered a cool 6-7 per cent interest rates on SB a/c, while most others offered 4 per cent.

Today, rates are as low as 2.7-3 per cent. Instead of letting these sums earn paltry returns, you can make use of options such as flexi deposits and sweep facility to get more bang for the buck.

These options let you park you SB a/c balance (above a threshold) in a deposit which can earn higher interest, while at the same time giving you the flexibility to access the funds any time when you need to execute a transaction or make a payment.

Though the average fixed deposit interest rates are at 5-6 per cent today, it is still higher than what your SB a/c will earn.

Pay cuts and temporary job losses might make it difficult for you to make ends meet.

Borrow less

But claiming moratorium on EMIs or taking personal or credit card loans is best avoided. Interest is not waived during the moratorium period and can impact you, in terms of higher EMI or longer tenure, once the moratorium period is over.

One option you could explore instead is switching to lower cost loans, if the arithmetic works in your favour.

Moratorium on credit card dues will also balloon your interest dues. Personal loans come at high interest rates of 10-25 per cent, and credit card loans aren’t cheap either.

Instead of borrowing, it would be better to break your existing investments to meet contingencies. Bank deposits have an insurance cover of ₹5 lakh and small savings schemes are guaranteed by the government. Hence, try to break them as a last resort.

Investments in corporate/finance company/risky co-operative bank FDs or stocks (if you have made good returns) can be broken first.

Invest wisely

The sharp rally in the stock markets after the March lows is attracting new investors in droves. If you haven’t played this game before, it is better to choose the mutual fund route to invest in stocks. You can consider funds such as Axis Bluechip, Mirae Asset Emerging Bluechip, Kotak Standard Multicap, SBI Equity Hybrid and UTI Nifty Index, which have been able to contain losses well during market down cycles.

It would be unwise to avoid fixed-income options fully because of low interest rates, or to invest your entire surplus in gold as prices seem to be only moving up. The best way to save well for your future is to decide on an asset allocation across equity, debt and gold (maximum 10-15 per cent of your portfolio) and rebalance it every six months or so, depending on the market value of your investments.

That way, you will take only as much risk as you can afford to and not be carried away by returns alone.

Today, fixed-income options such as the Goverment of India floating-rate bonds, the Public Provident Fund (PPF) and FDs of some private banks offer reasonably good returns of over 7 per cent.

You can use near-term corrections to invest in gold through gold exchange-traded fund (ETFs) or choose sovereign gold bonds (tranches open for August 3-7 and August 31-September 4), which come with an eight-year tenure to maturity.

Insure enough

The Covid-19 outbreak has brought out the importance of health as well as life insurance like never before. If there is one spend you should not cut down on, it is the premium outgo on your health as well as term insurance policies.

Check if you have adequate health cover for you as well as your dependants. Else, this is the time to increase the cover by taking top-ups or super top-ups. Existing policies cover Covid-19 hospitalisation. To cover home quarantine-related expenses or that of disposables such as PPE, gloves, mask, etc, you can probably take an OPD cover as an add-on. The recently introduced Corona Kavach and Corona Rakshak also cover home quarantine-related expenses. If you have dependants and/or have liabilities, take a term insurance policy to cover your life.

Track spends

Finally, cut out discretionary spends such as buying new gadgets/durables. Instead, spend on essentials, health and wellness. As far as possible don’t stop your SIPs (MF systematic investment plans)or recurring deposits as they inculcate a regular savings habit. Invest in upgrading your skills to stay relevant on the job front.

To free up cash flows, you can revisit insurance-cum-investment products which often involve a hefty premium outgo. You can also put an end to auto debit of subscriptions you no longer do justice to.

Track your expenses and eliminate the excesses.

Published on August 02, 2020

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