The Coronavirus pandemic has caused devastation across the globe. Besides the toll on human life, with countries going into lockdown, economies have also taken a huge hit.
India too is not immune to this. As the government doubled down on its efforts to control the spread, the country was put into lockdown, and that brought the economic activity to a screeching halt. While stopping everything was difficult, experts believe it will be far more difficult to restart the economy. This will mean the demand shock that the halt in economic activity has unleashed will last for at least a few months. This, combined with global factors, means we are looking at at least 9-12 months of subdued growth. World Bank has predicted India's GDP will grow at just about 1.5-2%. That's slowest in the last three decades since the economic reforms.
While the slowing economy is beyond our control, but what we can control is to prepare ourselves and our finances for the upcoming slowdown. This will ensure peace of mind, and you will have one thing less to worry about. In this blog, we tell you 4 things you should do to be ready financially.
1) Build or Beef up your Emergency fund
We have been saying this for quite some time now that an emergency fund is the first thing anyone looking to invest/save money should be creating. It makes sure you are able to face uncertain times like these with confidence.
Now, if you are someone who paid heed to the advice, great, but one thing you can do is beef up that fund. So while the rule-of-thumb is to have 6 to 9 month's expenses as an emergency fund, it might be a good idea to make it 12 month's expenses so you are prepared for a prolonged slowdown.
And if you are someone who hasn't build it yet. Start now. While it might take you some time to have the optimum amount, it is still worthwhile to begin now. Over the next few months, focus on keeping aside a good chunk of your savings aside as an emergency fund.
2) Make a Budget and stick to it
While making a budget and sticking to it something you should be doing, it becomes a must-have in uncertain times. We all splurge on things, swiping credit cards to buy things we don't necessarily need, with the belief that you will pay it off next month when your salary comes. While this assumption holds true in normal circumstances, in a period of slow growth where companies struggle to make money, salary cuts and even lay-offs are normal, not an exception. Should you face a situation like this, getting bogged down by expensive debt like this will only make things worse.
Remember, living on a budget is not about compromising your lifestyle. It is about knowing how much money you have and then deciding how you should be using that money.
3) Buy a Health Insurance
Yes, we know, you have a health cover your company provides. Why waste your money in buying something you already getting as a perk from your employer. Well, there are two main reasons you should be doing this.
One, as revenue and therefore profits fall for companies due to this slowdown, they might look at reducing perks being offered to stay afloat. Health insurance is a benefit and has a cost for every organization. So, it might be cut or reduced. Not having a sufficient cover is not a situation you would want to be in. Second is in an unfortunate situation where you are laid-off; you will be left with no cover.
Should a medical emergency come up amidst all this, you will be forced to dip into your investments. And exiting investments now will mean you are making your losses real.
4) Hold off any loan-fuelled purchases
If you have been planning to make a big purchase like buying a home or purchasing a new car and would be taking a loan, it is best to postpone those purchases for some time.
One advantage is that the money you would have put as your contribution to this purchase stays with you, and that extra cash-in-hand can make a big difference in uncertain times. Secondly, not having any debt on your head means even if you get a salary cut, you can easily navigate these tough times.
With so much happening around, it is easy to feel gloomy. But remember, we will all come out of this stronger. So sit tight, prepare yourself, and everything will be alright. As they say, tough times don't last, tough people, do.
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