A Year After Lockdown: Money lessons that should stay with us forever

India implemented a strict lockdown in March last year to contain the spread of the deadly Covid-19 virus. Most industries halted temporarily or cut-down production due to the lockdown leading to widespread job losses and pay cuts. A year later, as the number of cases continues to rise, the pandemic is far from getting over. Probably the most important lesson this crisis necessitated to acknowledge is that health is wealth — but both need each other, especially during a financial crisis.

In this article, we summarise a few important lessons that we should never forget:

Emergency Fund’s Importance Is Unparalleled
An emergency fund is that pot of money that will keep you self-reliant and help you manage your day-to-day expenses during contingencies like a sudden job loss, medical emergency or a salary cut. An emergency fund helps you live a financially dignified life when there is no or irregular flow of income. Many who faced sudden job losses last year managed to meet their expenses well by dipping into their emergency funds. So, if things are stable for you on the job front and you think that an emergency fund is not important, it’s time to change your thinking and start building a contingency fund at once. This fund should be adequate to meet all your necessary expenses for at least 6-9 months. Also, if you used your emergency fund last year, replenish it with the income you have to strengthen your finances for future emergencies.

Adequate Insurance Cover Is A Must Too
Insurance is that financial instrument that protects you and your family against life and medical emergencies. While a life insurance cover helps your dependents manage their expenses in the unfortunate event of your demise or disability, a health insurance plan protects your finances by covering your medical costs. So, having adequate life and medical insurance cover is of utmost importance and should be your top financial priority. When buying a life insurance cover, you might want to go for a plain vanilla term plan to get the much-required sum assured for your family at affordable premiums. This should be good enough to meet their necessary expenses such as children education, loan repayments, etc. when you are not around. You should also consider getting a comprehensive medical insurance plan covering yourself and your dependent family members with a coverage of at least Rs. 5 lakh-Rs.7 lakh to safeguard your finances if any of the insureds require hospitalisation.

Managing Your Loans Is Critical
The government and the RBI announced many measures last year after the beginning of the lockdown to help people deal with the financial crisis. A loan moratorium was announced to give people a holiday from paying their EMIs for a defined period. But the interest continued to accumulate in this period, which was eventually to be paid. The pandemic thus gave an important money lesson that loans need to be managed in a highly disciplined manner and you should be ready with a repayment plan for exigencies too. So you must always keep an emergency fund ready for loan repayments even when your regular income flow stops. Before borrowing, assess if it is a necessity and is based on your repayment capacity. To reduce your debt burden, you may also consider consolidating your big-ticket loans or switching to a lender offering a lower interest rate.

Invest Regularly And As Per Your Financial Goals
During the time of lockdown, many investors opted to take a break from their investments or halted them completely to address cash-flow issues. Many also dipped into their retirement kitty without exploring other avenues for meeting the cash crunch. On the other hand, many investors who remained invested during these challenging times or wisely took their investment calls got great results over time. They also remained on track with their financial goals.

Using your investments allocated for achieving important financial goals may appear to be a viable idea during difficult phases, but ultimately you are losing your precious fund that took so long for you to build for an important cause. If you were compelled to use it as you had no other choice, try to bring it back on track as soon as possible to not lose on the investment benefits. You should also review your investment portfolio periodically and align it as per your current income, financial goals and risk tolerance by diversifying them across various asset classes and rebalancing your portfolio if it’s skewed towards a particular asset class.

These money lessons should stay with us forever so that we are always prepared to take on any future financial challenges.

The writer is CEO, BankBazaar.com. Views expressed are personal.