During this coronavirus pandemic, many people realized that they do not have sufficient funds and a reliable source of income. The realization hit many people on the face. The economy is at worst as the markets are falling, businesses are closing and there have been several job losses. In these circumstances, your savings and your source of income are the two options on which you can depend upon. And if you don’t have both, the only option left to you is either to raise cash by selling assets or borrowing (taking a loan).
Well, both the options are really not cool. But the least we can do now is to plan our finances in a good manner and learn from our mistakes so that when there is a sharp market downturn you are prepared. Planning your finances not only helps you to fight a pandemic financially but also helps you to be prepared for large and unplanned expenses in future, home repairs, large medical expenses and in case of job loss.
What do you need to do?
These conditions can be common if a sudden demand is created beyond the regular monthly expenses. Or, in the case where the market is low. Here a good financial plan and money management skills are the one which can save you. But, you cannot expect to get the results just in a month or two. To achieve financial milestones and at least to have a decent amount of savings to live a financially secure life you need to practice money management skills on a regular basis for years.
- You need to start by setting up short term financial goals.
- Give yourself targets.
- Keep yourself motivated
- Start budgeting
- Learn to live within needs not with your wants
- Have investment
- Clear up your dues
- Take loans when only it is required.
Having Emergency Funds
- When there is a job loss, pay cut or an emergency liquidating your assets and funds is never the first option. Using savings and emergency funds are the first thing you look for. So, before you start investing it’s important to save some and then separately keep some as emergency funds. Creating a financial planner can help you do all this accurately. Divide your income percentage-wise based on savings, spending and investments.
- Even when the market is down, no one usually wants to sell investments. Assuming you don’t think the decline is permanent and you’re a long-term investor, the better strategy is to hold the investments. But, you can do so if there is an emergency.
Why is Investment Important?
- The chief ways by which you can generate money is by earning and investing. However, to earn money you need to do work or perform any sort of activity which pays you money in return. But, when you invest, your money works for you and gives you more money in return over a period of time.
- You can develop assets through investments.
- Investments may include a range of choices, including stocks, bonds, mutual funds and real estate.
- For an individual his/her investment goal should depend on his or her income, age.
- Risk Tolerance is the key factor that helps you to invest as many of the investment portfolios contain risk.
- To be at a safer side and reduce risk, try to invest in less risky portfolios which include PPF, pension schemes, real estate investment and so on.
Short term Borrowings
It is important to note that apart from home loans and car loans if you are in a situation where borrowing is the option, then, in that case, you should consider borrowing through your PPF and other insurances. This is suggested because for these borrowings the rate of interest charged is really low. However, the restriction here is the loan amount cannot exceed 25% of the balance available in the PPF account which is at the end of the second financial year preceding the year in which the loan was applied for.
Taking care of the above-mentioned points will surely help you to achieve better finances and will also help you to be prepared to fight the next emergency.