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Personal Finance: Financial planning for the pandemic – Hindustan Times

Many of us have had to face a sudden financial jolt due to unemployment or mounting medical bills on account of the pandemic. It may sound counter-intuitive, but there’s no better time than now to take a hard look at our finances and plan for a more secure future in the face of an uncertain present. Every problem is an opportunity in disguise. This means that notwithstanding the insecurity that this pandemic may have caused in terms of your long-term financial planning, certain necessary steps taken today can still help build financial security. The pandemic and its effect are expected to be prolonged, so it makes sense to implement the following strategies for your financial well-being in both the near and distant future.

Build an emergency fund: We may have had to dip into our savings to manage our expenses the past year. However, not many people have an emergency fund in place. Typically, an emergency fund should help you coast through a year. It’s not necessary for this to be in cash. Keep the money in a savings account or in small fixed deposits that can be easily liquidated.

Go for a budget makeover: There are many unessential items and services that we spend on. Identify them and curtail them immediately. This will leave you with enough money that you can save. Go through your monthly budget to identify where you can save cash. For example, you can forego travelling in your vehicle every day and carpool to cut down on how much you spend on fuel and parking.

Get rid of your debts: Mounting credit card debt is never advisable, especially, because of the high interest rates associated with it. The recent fall in loan interest rates due to the economic fallout can relieve you of credit card debt. You can opt for refinancing your debt by securing a low-interest personal loan to repay your high-interest credit card debt. You can also opt for a credit card balance transfer to lower your credit card debt.

Continue with investments: Many people panic after seeing stocks tumble. This has led many people to sell off their investments hurriedly as they see the value of their portfolio decreasing. With the stock market estimated to show an undulating movement due to continued volatility, it has become more important to consider all investments and review them in the light of renewed future goals and retirement plans. Depending on whether you are an aggressive investor or prefer moderate investments, you can continue to set aside your earnings in equity or debt.

Refinance your loans: Banks have lowered interest rates on loans more than ever before, thus, allowing you to get rid of your current mortgage. If you had sought loans at floating interest rates, this is the right time to avail the benefit of low-interest loans. Alternatively, you may also consider getting your loans refinanced by taking a loan at a lower interest rate to repay your earlier loan. Atul Monga, CEO and Co-Founder, BASIC Home Loan, an automated platform for home loans in India says, “People should refinance home loan if they had same in the pre-Covid era at an interest rate of 8 or 8.5% or higher. Since they have been repaying the loan over a term of more than two to three years, they would have improved their credit score and should be eligible for a lower interest rate. Presently, banks offer interest rate at an average of around 7% per annum. In this case, refinancing will help reduce the monthly EMI to a larger extent. However, to keep the interest rate low, you should opt for a shorter loan tenure as longer tenure will imply high-interest burden.”

Buy insurance: If you already have a health cover, it makes sense to renew with a higher health cover to meet sudden contingencies. You could consider a super top-up insurance plans if hospitalisation bills exceed the sum insured under your base medical insurance policy. Either way, buying a life insurance policy is not a choice anymore, but an imperative. Irrespective of the times that await us, it is important to take control of our finances and have a stronger financial plan in place.

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