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  • by August 18, 2020

How to manage Financial Stress during Covid-19 Pandemic?

by CA. Preksha Jain

Year 2020 has already been tagged as the one of the crucial and historic year due to pandemic situation declared across the world. Precautionary measures like wearing masks, sanitising hands after every hour, social distancing at public places etc, have slowly and steadily becoming part of day to day life of a common man. Lately, this has also brought behavioural changes among consumers, investors and home makers. This article is to apprise about the changes that should be incorporated in daily life to cope up with financial stress and secure your future in case of upcoming economic crisis.

1. Create a Backup Plan-

The economic fallout of the pandemic has led to widespread job losses and pay cuts, and countless might be finding it challenging to get a new job with better or even similar perks during this lockdown. I believe that our money should be invested in such a manner that it should work for us in case of emergency. Famous entrepreneurs and billionaires have never kept their money in savings accounts or FDs; they invested in other ventures to multiply their money. So, it is the need of the hour that we should not be dependent on our only source of income from job. Focussing on creating new income channels is the key. It’s an advise, never keep your money stagnant, invest in profitable start-ups or companies, start an online business as per your area of interest, etc.

This might sound difficult for those people, whose earnings are fully consumed in day to day expenses, paying EMIs and children fees. The internet has created a lot of endless opportunities for anyone who’s ready to make use of them.

  • Blogging- For more than two decades now, people have been making a living from blogs, primarily by delivering free, actionable, entertaining, informative, and educational content on a variety of topics to their audience.

  • Freelancing- No charges and no investment, just need an internet connection. After some time, you will grab projects for clients start working and get paid for the job. In the process, while working on the project you learn so many things from freelancing without any investment.

  • Launch an online course- Building and selling online courses is an excellent way to generate passive income. I myself take online classes on technical and fundamental analysis of stock markets.

  • Virtual assistant ship- Entrepreneurs, professionals and small teams often need assistance with various administrative tasks. These could include scheduling meetings, getting in touch with clients and investors, following up on orders, creating business documents like PowerPoint presentations and Excel sheets, managing blogs and websites, etc. Virtual assistants work remotely with such clients, managing the aspects of their business or practice that they are too busy to handle themselves.

  • Partner with a drop-shipper- Managing inventory can be a laborious task when you’re planning or already running a business. Drop shipping is a fulfilment model where a third party supplier stores and ships inventory to customers on your behalf. You just need to make the sales and pass orders on to your supplier; you don’t need to handle the products yourself. This is purely zero investment models.

  • Affiliate Marketer- Affiliate programs let you earn an income through referring potential customers to specific websites. You can sign up for various affiliate programs and then share links on your blog, website or social media channels.

  • Social Media Influencer-If you use any social media sites, you can build up your influence over time and then offer your services to brands that are looking for influencers to promote their products or services.

  • Local Business Consulting-If you’ve developed valuable skill sets or certifications within your industry over the years, consider putting your skills to use in your free time by offering your consulting services to local business owners. Whether you’re an expert marketer, business strategist, or manufacturing aficionado, there’s likely a local business owner who’s willing to pay you to help them solve an issue with their company.

A CA/CS job have no restrictions on earning through any additional source of income. However, CA/ CS in practice have to limit his income through only practice due to code of ethics. He/ She can involve his family to start a business on their own for earning extra income. Having multiple income streams would provide some liquidity and lower your dependence on your contingency fund or prevent the liquidation of essential investments when your primary income source is under turmoil. More importantly, it would help you avoid falling into a debt trap.

Benefits of multiple sources of income-

  • Financial security - If one source of income drops like what is happening around the world at present, you have other options to recover that lost income.

  • Diversification - A variety of sources allows you to protect yourself and boost your risk tolerance, opting for newer ways to invest and save.

  • Passive earnings - There are ways to earn extra money without adding additional work. You know what they say: you work hard for your money, so it's time your money works for you.

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2. Priority of having an emergency fund-

Building an emergency fund equal to at least 4 to 6 months of your living expenses serves the purpose of taking care of any expenses for unforeseen events. Emergency money is meant for sudden but necessary expenses.

Besides routine expenses like school fees, groceries, medicines and utility bills, set aside an additional amount as cushion for any unforeseen expenses. This amount should be parked in liquid instruments, so that you can realise the proceeds the moment they are needed. A combination of ultra short-term debt funds and flexi-fixed deposits is good for emergency funds for up to six months. For beyond six months, short term debt mutual funds are better suited. You can also look at putting in three months’ expenses in regular fixed deposits, with the balance being directed to longer-tenured debt funds that offer higher returns. You can even save the money you're suddenly not spending on transportation, eating out, and other non-quarantine approved activities.

For those who don’t have an emergency fund, this will be a painful lesson, but hopefully, as a result, you will make better financial decisions when it comes to your money habits in the future. When the next financial crisis comes, don’t be everyone else.

3. Diversifying your investments in different sectors and asset class- 

This is a piece to advice that never keep all your eggs in one basket to avoid major losses. Everyone should have a diversified portfolio, holding bonds, cash, gold and property funds alongside shares. Even if you are an investor or trader in stock market, bearish markets are a good reminder to give your portfolio a check-up and consider making some moves to bring your portfolio back into balance. Try to select stock from various sectors like pharma, banks, automobiles, telecom, steel etc so that you have a diversified portfolio. During recessions, some companies survive till last while many shut off in between or during recovery phase. It is better to maintain a balance- let’s say that you decide to invest 40% of your portfolio into equity mutual funds, 30% into debt funds, 20% in stocks, and 10% in term deposits (just a vague portfolio).

Experts maintain that investors should keep around 10-15% of their portfolio in gold. Investors who had taken some gold exposure would have been partly cushioned from the recent slump in the equity market. At present, the gold prices are sky rocketing and everyone is cribbing for not investing in gold.

If you are worried about the thefts and bank frauds happening in India then, avoid buying physical gold (ornaments or bullion)and go for financial assets such as gold ETF or gold sovereign bonds. These allow investors to purchase gold in denominations as low as 1 gram while affording high degree of convenience and safety.

4. Borrow cautiously-

Now it has become a trend to keep at least two to three credit in your pockets for instant payments. However, such credit cards have increased our spending for unnecessary or non useful items because it provides a month gap to pay our credit card dues with nominal additional charges. Even having two credit cards can be one too many if you can't afford to pay your bills, you don't need it or don't plan to use it for some purpose. In order to maintain a good credit score, a person ends up having multiple credit cards and simultaneously loose control over spending. t would be best if you didn't have to use a credit card for an emergency—and you'd have enough money in a liquid account like a savings account to use in such a situation. Moreover, it is widely seen that in order to buy luxury items and be a part of“If you buy things you don't need, you will soon sell things you need.”

Community, people generally takes huge loan without determining their paying capacity and end up in borrowing huge debt. The first rule of smart borrowing is what the older generation has been telling us all the time: don’t live beyond your means. Take a loan that you can easily repay. And if you have borrowed money, then whether it is a short-term debt like a credit card bill or a long-term loan for your house, make sure you don’t miss the payment. Missing an EMI or delaying a payment are among the key factors that can impact your credit profile and hinder your chances of taking a loan for other needs later in life.

Never miss a loan EMI, even if it means missing other investments for the time. In an emergency, prioritise your dues. You must take care never to miss your credit card payments because you will not only be slapped with a non- payment penalty but also be charged a hefty interest on the unpaid amount.

5. Ensure that you have a insurance plan- 

While we usually can't prevent the unexpected from happening, sometimes we can get some protection. Insurance is meant to safeguard us, at least financially, should certain things happen. Insurance plans help us in paying long hospital bills which we might not be able to pay through our monthly income. In times like the current one, when even getting out of one's home and meeting people are considered risky, there should be no excuse for not having adequate life and health cover if one can afford it. While planning their finances, individuals should consider health insurance as one of the first necessities. Depending on one’s needs, individuals can opt for an individual policy both for themselves and for the family, or opt for a family floater plan to cover the whole family in one policy. The insurance plan should be purchased as per the financial capability of the insurer. He can also opt to purchase a critical illness cover over the health insurance policy. Critical illness plans help policyholders in case of life- threatening diseases such as tumors, cancer, and heart disorders. Treatment for these illnesses is quite expensive, and generally, health insurance policies do not pay under these circumstances. With a critical illness plan, however, the fixed benefit offered pays a lump sum amount to the policyholder for the treatment. If you have already a current plan running then timely payment of your insurance premiums also needs to be a top priority. Your life insurance plan will help secure your dependent family members’ financial interests if something untoward were to happen to you, and your medical insurance plan will safeguard your precious savings if any of the insured’s require hospitalisation.

6. Determine your risk tolerance-

Risk tolerance refers to how well you can handle losses when your investments perform poorly. Risk tolerance is usually influenced by your goals, length of investment, age and stage of life, portfolio size and your personal stance on risk. Investing without considering risk tolerance is like sleepwalking to the edge of a cliff. It’s time to reassess your risk tolerance and avoid making a decision believing that you still are capable of taking a high risk as it was before the corona virus pandemic.

7. Not need to change your retirement plans; don’t stop SIPs now-

Discontinuing SIPs in a downturn is perhaps the biggest mistake an equity investor can make. It defeats the very purpose of the SIP by denying the investor the opportunity to accumulate more when prices are low. The concerns of investors are understandable.

It is because, under SIP, same amount is invested in equal interval and when NAV of funds are lower at low market, you would get more units. As fund is denoted by the product of NAV and number of units (i.e. NAV x No. of units), higher the number of units you accumulate, the higher will be the fund value when NAV moves up in high market. So, to get a higher return from your investments in equity MF, you should never stop your SIP at low market and if possible, make some additional investment to acquire more units to maximise the return. Historically, investors have gained by continuing SIPs through lean market phases and sticking around for the longer term.

8. Invest your at least 5 hour in week for learning-

Learning is the single best investment of our time that we can make. Or as Benjamin Franklin said, “An investment in knowledge pays the best interest.” Knowledge is such an intangible asset that never gets depreciated with time; it is the most valuable thing any person could possess. At a fundamental level knowledge is gradually becoming its own important and unique form of currency. In other words, knowledge is the new money. Similar to money, knowledge often serves as a medium of exchange and store of value. If you are skilled, qualified and own qualities being academics or other curricular which gives you an edge over others, then no company can even think of laying off you. Working on your knowledge, increasing learning and reading capacity, spending more time on grooming your personality will always help you to attain success and be a long term KHILADI in every aspect of life. The more knowledge you have on a certain subject, the more equipped you are to deal with it. It acts as a ladder to attain power and success. Therefore, it is better to invest in knowledge.

The Bottom Line-

It is vital to change your investment behaviour to fight with any emergency situations. Emergencies are uninvited guests but planned investments can help us in overcoming the situation smoothly. A little planning would help us greatly to come out of this crisis with minimum damage. We often overlook the importance of investment till the date we suffer the pain of not doing it. Keep your investments high and low your expenses is the mantra that should be followed by everyone to have a happy and secured life.

About the Author CA Preksha Jain is currently working in P Jain and associates from last 3 years in Jodhpur, Rajasthan in the field of indirect taxatio. Presently, She is involved in conducting internal and statutory audits under GST. Moreover, She is also engaged in handling advisory, legal and litigation matters along with day to day compliance work in GST. She is  a regular writer and her articles have been published on various renowned sites like taxmann, centax publications, taxguru etc. Apart from pursuing her profession, She is  actively involved in various NGOs like Robinhood army, Jodhpur Blood donors, The Hope House.You may reach out to her on [email protected] any suggestions or questions. 

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DisclaimerViews expressed here are personal views of author. It does not form any professional opinion. For more information we request you to seek advice from Professional.