The Simple Yet Effortless Approach to Personal Finance

As the Indian economy begins to recover and reopen, many consumers are still scrambling to regain their financial footing. While the conventional wisdom is to sock away savings, that became an impossibility for many during the Covid-19 pandemic, as millions of people lost their jobs, small businesses were forced to shutter, and day-to-day living expenses piled up.

If there’s anything the pandemic taught us, it must be the dire need for financial resilience in times of uncertainty. Yet, at the same time, the pandemic blatantly revealed all the frailties in our financial foundations and stressed the need to fix the cracks before the building tumbles.

Regardless of the current, past, or future health effects of Covid-19, the pandemic has affected and will likely continue to affect personal finances for years to come. Creating a spending plan, prioritizing your spending, and using your resources efficiently will always be critical to your financial stability.

For example, during the second wave, the retail health insurance sector saw a spike in the number of new inquiries for new health insurance policies as the pandemic unravelled across the world. This comes as a blessing in disguise as it indicates that many have started taking the first steps towards covering themselves with basic insurance.

At the same time, people realized the importance of liquidity. As per RBI’s household finance survey in 2017, Indian’s invest 84% of household wealth in real estate and other physical goods, with 11% in gold and just about 5% in financial assets. The pandemic showed us that a liquid emergency fund is critical in times of uncertainty.

Thus, a rapid rise of approximately three times in the number of new DEMAT accounts in FY21 (vs. FY20) opened post first wave of the pandemic is a clear reflection of an increase in interest in stock markets.

However, with the scare of the new variant and no signs of another lockdown just yet, now is a good time to plan for debt management and become financially resilient. Most of these topics are being covered by new-age Fintech and Edtech companies. At the same time, these new-age fintechs are making way for innovative buy-now-pay-later (BNPL) products that provide a seamless digital check-out experience for e-commerce and run the risk of acting like a double-edged sword.

Thus, the ideal way to deal with such a situation would be to save before spending. This is easier said than done; however, this simple rule encompasses the entirety of personal finance. Covid 19 taught us it is essential to build up an emergency savings fund and create a financial plan, while it also highlighted the need to have a budget, however small it may be.

A few takeaways for beginners in the field of personal finance:

• Put a blind 20-30% of your earnings aside, even 5% is a good start.
• Keep in mind whether what you are buying is an asset or a liability and their shelf life. For example, a car may not be the best example of an asset, contrary to popular belief.
• If you can afford to work towards multiple financial goals at once, then you should. However, your savings shouldn’t be compromised.

In a post-pandemic world, the financial services sector will look forward to virtual services which will largely focus on meeting customer needs. However, inculcating financial habits of saving money, having a budget, and understanding the formal banking methods remains a pain point in this generation. The basic tenet of financial planning, of thinking long term and spending less than you earn while keeping an emergency fund, is the thumb rule of managing one’s finance and can be a saving grace to many if followed consistently.

(The author is the Chief Executive Officer at Dinero – India’s first habit-building neobank that aims to help young professionals build stellar financial habits)