Lockdown buzz growing: Stay financially safe

The growing lockdown buzz as the Covid-19 situation worsens is creating a sense of déjà vu among many. Many states have limited imposed lockdowns as rising infections are putting immense stress on the healthcare system and there is talk of stricter measures on the anvil. Memories of the difficult times during the long countrywide lockdown in 2020 have begun to haunt many.

Though one hopes that the situation in the country eases with the measures and as more and more people get vaccinated, the situation appears to be grim and one needs to be prepared for all eventualities.

Here is a reminder on the few money moves that you should ideally make to remain financially safe in case the situation worsens requiring a repeat of the 2020 countrywide lockdown.

Create an emergency buffer
While an emergency fund is necessary at all times it becomes even more important during these uncertain times. You need to figure out how long the money in your bank will last in the worst-case scenario like a job loss. The emergency fund will help you see through difficult times in case your salary stops or you have a sudden large expenditure. To create an emergency fund, you should calculate your monthly expenses and prepare your plan accordingly. Financial advisors suggest maintaining an emergency fund of 6-12 months of expenses, including loan repayments, which is easily accessible. Thus, if your monthly household expenditure is Rs 50,000, your emergency fund should have between Rs 3-6 lakhs.

Have cash in hand
Since movement is restricted in times of lockdown and access to your bank may be limited, you need to have some cash in hand to pay for your daily needs. Despite the push for digital payments, there are a lot of day-to-day expenditures and payments that can be settled only with cash. The amount of cash in hand required will differ from family to family and you have to calculate your needs.

Remain well insured
Do you have adequate insurance, especially health insurance? It may be time to relook your insurance portfolio. The entire crisis is being caused by a health scare and there is no reason to assume that you, or your family members, will be immune from getting infected. Besides Covid 19 there could be other health emergencies that cripple you financially.  Since job loss is a possibility do not depend solely on your office health insurance cover.  A family floater health cover is ideal in such situations. Besides health insurance, a good term insurance is also the need of the hour.

Avoid adding to debt burden
Since uncertainty is looming, you should avoid increasing your debt burden. Unless a big-ticket purchase is absolutely necessary, you will do well to postpone it to the future. This is because even if there is erratic income, the loan EMIs will have to be paid. You should also limit your credit card expenses at this point so that you do not revolve your dues. Credit card outstanding attracts huge interest payments going up to around 40 percent annually which could land you into a debt trap. In fact, if you have an outstanding loan that attracts big interest payment you could consider foreclosing it by liquidating your investments.

Plan for timely EMI payments
One of your top priorities should be to provide for your EMI payments on existing loans. You shouldn’t stop your EMIs as by doing so you may have to pay more interest when you restart paying them. Also, timely payment of EMIs helps you to maintain, and improve, your credit score.

Minimise spending
As a corollary to the above, it is time to be cautious on your spending.  You must take stock of your expenses and analyse which of them can be reduced or removed for some time. This will result in higher savings in your bank. Analyse your possible discretionary and non-discretionary spends. Discretionary expense is a non-essential expense that you can avoid. The focus should be on conserving cash. It is time to reduce your discretionary expenses.