Financial Lessons from Covid-19

Covid-19 has undoubtedly taught us many things. It felt like a jolt when many unheard things happened which we never dread to think of. Money is an important source to cope up with uncertainties. Many people across the world who owned their business or were salaried employees faced new challenges for survival. Loss of a job or shutting down of a business resulted in financial stress for many. On the top of that those who faced a prolonged hospitalisation had a different story altogether.

We are now well aware how things can go wrong in real world situations. It could be Covid-19 or anything else, let’s learn to be prepared in advance so that we do not have to live in monetary distress. What we can do is:

Invest adequately: Set a target to invest a certain sum of money regularly and invest it. Any kind of loan payment should not be adjusted against these investments as breaking corpus could put you in trouble in later years of your life. Investment could be for various purposes. And using them for purposes other than they are meant for would be a dangerous decision. Any retirement or super annuity plans should not be disturbed in any case.

Provision for an Emergency Fund: Funds equivalent to at least six months’ household expenses should be set aside even when you are earning well in your job or from your business. But if your income is irregular, then make a provision for paying one year’s bills in advance to save you from unprecedented events. For this you need to save regularly and avoid all kinds of unnecessary expenses. Put your money in a savings account or FDs in such a way that they can be liquidated any time and are readily available.

Insurance cover is a must: Having a health insurance cover is a necessity. The cover should be larger enough to protect you from all kinds of heavy expenses incurred in the course of hospitalisation. Sometimes the hospital stay along with the pre and post hospitalization costs is too high that the insurance is unable to pay all the expenses. For an example, Mrs. Sharma took health insurance worth Rs.10 lakh. She was sufficiently covered when she had to pay for a longer stay in hospital to pay off a bill amounting to Rs.6 lakh.

Understand the terms of your insurance policy before getting it. Provide for your family members too in the plan. With base cover take top-up plans.
Similarly, life insurance is a shield to protect one’s family against death of the earning member. There are many obligations to fulfill during a lifetime including paying off loans and children’s education costs. It is advisable to get Life insurance cover ten times of your annual income. In case of death of the insured, the family will be protected from financial crisis.

Pay off home loans:If EMI of your housing loan is more, you can shorten the term of the loan if you can afford it. Total EMI must not in any case be more than 50 percent of your income. Instead of buying expensive things, try to pay off loan obligations first. A lump sum can be paid to bring the burden down. Another thing is to shift your loan to a bank which takes a lesser amount of interest. Currently a few banks are offering loans at lower rates of interest like SBI and Kotak Mahindra bank. Keep yourself updated about such changes and shift timely to save on interest payout.
When your loan is linked to the older base rate or Marginal Cost of funds-based Lending Rate and your bank is not giving you the full rate cut benefits, then you must shift your loan to a different bank or HFC.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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