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Expert tips on managing your personal finances during the pandemic

·6-min read
The pandemic has seen many families dip into their savings.
The pandemic has seen many families dip into their savings.

That the pandemic has changed our lives is an understatement – from the way we move around to the way we socialise, work and even breathe, every aspect is different now. Financially, as well, the pandemic has taken a toll with many staring at income losses, rising medical costs, reductions in salaries, or the untimely death of a loved one – often the sole bread earner in a family. 

If there is one thing the pandemic has taught us, it is the importance of taking care of our finances and being disciplined. 

“While the market is currently on the road to recovery, 2020’s market helped us understand the importance of portfolio diversification towards alternative assets like debt investments, Covered Bonds, and more,” explains Ajinkya Kulkarni, Co-founder and CEO, Wint Wealth. Job losses have made us relook our expenses and search for alternative income sources, while people have also had to review insurance policies which had turned inadequate.

Ajinkya Kulkarni, Co-Founder and CEO, Wint Wealth and Viraj Nanda, CEO, Globalise

Viraj Nanda, CEO of Globalise adds that since the outbreak of the pandemic, the increase in retail investor participation is visible. People have spent more time analysing their portfolios and are looking for ways to improve their returns. “While people have become more sensitised, interested and aware about investments as such, the financial planning and discipline required to build sustainable long-term wealth is a larger construct,” he states.

Nanda adds that the pandemic has sensitised people towards planning for contingencies and also the value of globally diversified portfolios. “The effect of the pandemic has varied across geographies, resulting in differing impacts on the respective markets. The heightened interest in international investing was visible on our platform as well, as we witness increasing traction on new accounts and the value of trades.”

However, Nanda cautions against being reckless in investments. “We noticed a build-up of speculative interest among retail investors chasing near term opportunities or getting into assets they may not understand completely, and that defies financial discipline,” he warns.

Tips to reduce financial burden

Kulkarni cautions that mismanagement of finances is one of the most significant causes of distress during the pandemic. Here is what he advises:

  • Hold off on big-ticket expenses for as long as you can. Do not take any risky bets in the hope of gains. Avoid borrowing to invest or splurge. These are uncertain times, and the rule book is out of the window.

  • If you have to borrow money, do so from family and friends first. Only borrow as much as you can repay, keep a short tenure, keep total EMIs under 40 per cent of income.

  • For big-ticket loans, take insurance and shop for low rates, prepay the costly loans. If possible, bunch all these loans and pay a single cheaper loan.

  • Prepare for the adversity of death, list debtors and creditors, take stock of all assets and documents. Understand how to liquidate each one as the need arises.

  • Review insurance policies.

  • Diversify your income, explore other avenues which do not involve lots of investment of time or money.

According to Nanda, for efficient money management, you need to take a strategic and holistic view of assets, with a clear understanding of goals. “This should lead to appropriately diversified portfolios across asset classes and geographies,” he explains.

Here are Nanda's tips:

  • Investors should ensure adequate liquid assets to tide over contingencies, avoid speculative exposure and maintain an appropriately long-time horizon for their investments.

  • Investing across asset classes and geographies would also potentially help investors build a diversified portfolio and reduce correlation risk.

  • Seek professional help: Managing portfolios end-to-end in a planned way is a very involved process and we recommend investors seek professional help and guidance wherever necessary, instead of committing money without adequate understanding.

  • Model portfolios are a good alternative to help investors simplify their investment decisions while leaving the research to the experts.

Ladies, be financially literate

The pandemic has been especially challenging for women, as they have had to deal with the sudden loss of income, soaring healthcare charges in case of hospitalisation or handle finances in case of death of their spouse.

Nanda advises women taking charge of finances, to strike a balance between growth assets and readily liquid assets to meet contingencies. “Do not get into investments that you don’t understand, maintain reasonable expectations from investments and not let near term returns sway investment decision making. You should also seek guidance from experts wherever necessary,” Nanda states.

Kulkarni agrees that women need to take a more active role in understanding and handling finances. “Financial knowledge is important and you need to be aware of where the finances are kept and what all obligations exist,” he explains.

Here is what he advises women:

  • Understand how to access your money. Get acquainted with net banking to reduce trips to the bank.

  • Set reminders to pay utilities and other bills.

  • Speed up savings if you are working, to deal with children's expenses, healthcare, parents' retirement.

  • Try to learn a skill that may provide you with additional income, apart from whatever proceeds you get from insurance, provident funds, etc. Regular income will reduce worries, help manage expenses and reduce the scope of financial distress rather than assets like gold or houses, which are difficult to sell.

  • Understand how to claim insurance (whether life, term, or health) in the event of emergencies.

  • Look at the illiquid assets and try to monetise them. Gather all documents about policies, assets, or bills. Take note of all liquid assets you can use to tide you over.

  • Keep in mind the routes of gaining concessional rate loans.

  • Take the time to understand how to manage finances in your spouse's absence.

Mistakes to avoid:

According to Kulkarni, with the markets and valuations at a high, taking concentrated bets in the financial markets should be avoided. Holding onto a well-diversified fund is entirely justified.

  • Do not let insurance lapse: Letting insurance lapse to save money is also not a good idea. If the policy is not optimal, you may surrender it to raise money.

  • Do not stop SIPs: If you are not facing a loss of income, you should not stop your SIPs. When equity prices are low, the fixed amount gets more units, and you make handsome gains on recovery.

  • Increase your income: Instead of making marginal changes to earn higher returns, focus on increasing your income as long as you can.

  • Be wary of loan sharks and online lenders: Do not hesitate to borrow from family and friends. Treat your hard-earned money with the respect that it deserves.

Nanda adds that maintaining investment and financial discipline applies at all times and not just during the pandemic. 

“A disciplined approach would suggest investors taking a macro view of their portfolios and seek advice wherever necessary. Specifically, though, during the pandemic we noticed greater levels of speculative trades with retail investors getting into assets with a very near-term view. This is something avoidable at all times and we feel investors should stick to basics of fundamental long-term investing,” he says. 

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