While the unprecedented Covid-19 pandemic took the world by storm, one of the most important lessons that came out of this crisis was the need to properly plan and manage one’s personal finances towards building a secure future. Some of the important takeaways that have emerged from the pandemic include:
1. Plan and actively manage your finances: Personal financial planning is of the utmost importance. Income, expenses, savings, investments and credit need to be aligned to the family’s short-term and long-term needs, wants and life goals. In a vacillating global economic environment, it is important to take advantage of the opportunities as well as to stay prepared for exigencies. Financial planning helps one stay in charge in both these situations. It is also important to actively manage, revisit and revise one’s financial plan, and implement changes in tune with evolving needs, wants and the overall economic scenario. Consult and seek help from a financial advisor in case you do not feel confident about handling your own finances.
2. Life Insurance and Health Insurance are crucial investments: Life is uncertain. The pandemic has not only proved this to the world, but also shown us how unpredictable life can be. Hence, ensuring financial security for the family is of top priority. Investment in a life insurance plan should be made towards ensuring adequate coverage for the family, that is, an amount which would keep the family financially stable in case something was to unfortunately happen to the bread winner. Health Insurance for the family is a must too, considering the increase in lifestyle-related diseases and rising healthcare costs. Good health being a basic necessity, these costs can neither be ignored nor negotiated. Hence, it is important to have satisfactory health cover for the entire family.
3. Build an emergency fund before investing money: An emergency fund can help one stay afloat in times of financial crisis. The amount in this emergency fund should be a minimum of 6-12 months of family income. Also, this fund should be quickly and easily available as cash, if and when required. Most importantly, the fund should be considered sacrosanct - available for use only in case of an emergency.
4. Avoid the debt trap: In an era of rising consumerism propelled by a mix of factors like better spending power, product innovations, inciting marketing gimmicks and easily available personal credit options and facilities, one can end up in a debt trap. This debt trap not only hurts financial planning but can become ruinous in times of economic crisis with interest mounting on unpaid dues and adding to the borrower’s liabilities.
5. Diversify investments: A basic tenet of successful investing is to diversify investments across different asset classes - equity, debt, gold, real estate etc. This helps not only to reduce risk but also to optimize returns. It is also essential to keep the investment duration and goals in mind when choosing financial instruments. For example, equity deliver results over the long-term. Investing in it with a short-term view is not advisable as it is highly volatile and hence risky.
6. Live a minimalist life: It's all about realizing that we don't need much to live a happy life. Excessive consumerism - a bigger house, a better car, more clothes, the latest electronics etc. just pushes our desires to the next level and keeps happiness out of reach. Living a simple life, focusing on needs, reducing wants and developing healthy spending habits not only ensures financial prosperity but also contributes to one’s mental and emotional well-being.
To sum it up, financial discipline and prudence is required to sail #FutureFearless through the ups and downs of life. This pandemic will depart eventually but if we are able to retain, imbibe and implement the learnings from this crisis, we will be financially ready the next time adversity strikes us.
(Article by Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance)
