The second wave of COVID-19 is well and truly upon us. Surging cases of infection have meant lockdowns or curfews in many states. Last year, when the pandemic struck and we were shut indoors, there was a heavy economic toll. Lost jobs and pay cuts threw financial plans into a tailspin. In short, we learned our financial lessons the hard way. But, has all that learning made us better-placed this time around? Is there anything we must do differently this time and are there takeaways that are still relevant from the first wave of the infection, as far as money matters are concerned?
Many of us realized the importance of an emergency fund. The corpus equal to a minimum of six months’ expenses and EMI, can help you ride out the period of job loss or curtailment of income. If you still don’t have an emergency corpus with you, then build one. The good news is that equity markets did well in the last year. Take some money off the table and have it as an emergency corpus. Harshvardhan Roongta, Principal Financial Planner at Roongta Securities says, “Be very clear in your mind that the emergency fund could be required for a longer period. In case of medical emergencies, keep aside adequate amounts in savings accounts or liquid mutual funds.”
Hopefully, we are wiser investors this time around. Last year, the S&P BSE Sensex fell 32 percent in March. Many investors panicked. They either stopped their systematic investment plans (SIP) or withdrew their investments in a hurry. Equity markets are expected to be choppy for some time this year, depending on how bad the COVID-19 situation gets. But falling markets also give you opportunities to make serious money, if you remain patient. “If you don’t need the money for another five years at least, invest in diversified equity funds in a staggered manner,” says Amol Joshi, founder of Plan Rupee Investment Services.
Vishal Dhawan, Founder, and Chief Financial Planner, Plan Ahead Wealth Advisors says that if we are close to our financial goals, it’s ideal to make some money off the table right away. The COVID-19 pandemic has not affected all countries uniformly. You can derive the benefit of diversifying overseas. Dhawan recommends starting with a small allocation to overseas index funds and increasing it over a while using SIPs. Continue to have some allocation to gold. If the rally in stocks and correction in gold prices have made your allocation to gold low, it is good to rebalance the asset allocation.
The first lockdown changed our spending patterns. Many had to drastically cut down their expenditure. Khyati Vasa, Founder of KV Adwealth Financial Services says, “Some people tend to indulge in online shopping just out of boredom leading to unnecessary expenses.” Such spending habits lead to wastages and can hurt your finances in case of a job loss or a fall in income.
Though moratoriums have helped borrowers in financial trouble to some extent last year, do not expect the courts and government to intervene again. Pay the EMI on time. If necessary, go for secured loans. If you have surplus money, then use some of it to pay down high-cost loans. But ensure that you have sufficient liquidity. Avoid buying a property for investment purposes using a home loan just because the interest rates are low.