Many of us have had to deal with a sudden financial shock due to unemployment or increased medical bills due to the pandemic. It may seem counterintuitive, 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 despite the insecurity this pandemic may have caused in terms of your long-term financial planning, certain necessary steps taken today can 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 both in the near and distant future.
Create an emergency fund: We may have had to dip into our savings to manage our expenses last year. However, not many people have an emergency fund. Typically, an emergency fund should get you through a year. It doesn’t have to be in cash. Keep the money in a savings account or in small fixed-term deposits that can be easily liquidated.
Go for a budget makeover: There are many non-essential items and services that we spend money on. Identify them and reduce them immediately. This will leave you with enough money to save. Review your monthly budget to identify where you can save money. For example, you can forgo riding in your car every day and carpool to reduce how much you spend on fuel and parking.
Get rid of your debts: It is never advisable to accumulate credit card debt, especially due to the high interest rates associated with it. The recent drop in interest rates on loans due to the economic fallout can free you from credit card debt. You may choose to refinance your debt by securing a low-interest personal loan to pay off your high-interest credit card debt. You can also choose a credit card balance transfer to reduce your credit card debt.
Stay with investments – Many people panic after seeing stocks fall. This has led many people to sell their investments hastily as they see the value of their portfolio decline. With the stock market expected to show an undulating movement due to continued volatility, it has become more important to consider all investments and review them in light of renewed future goals and retirement plans. Depending on whether you are an aggressive investor or prefer moderate investments, you can continue to reserve your gains in equity or debt.
Refinance your loans: Banks have lowered interest rates on loans more than ever, allowing you to get rid of your current mortgage. If you have been looking for floating interest rate loans, now is the right time to take advantage of low interest loans. Alternatively, you can also consider refinancing your loans by taking out a loan at a lower interest rate to pay off your old loan. Atul Monga, CEO and co-founder of BASIC Home Loan, an automated platform for home loans in India, says: “People should refinance home loans if they had the same ones in the pre-Covid era at an interest rate of 8 or 8, 5% or more.. Since they have been paying off the loan over two or three years, they would have improved their credit score and should be eligible for a lower interest rate. interest at an average of around 7% per year. In this case, refinancing will help further reduce the monthly EMI. However, to keep the interest rate low, you should opt for a shorter loan tenure, since that a longer tenure will imply a high interest charge”.
Take out insurance: If you already have health coverage, it makes sense to renew with higher health coverage to deal with sudden contingencies. You might consider a super supplemental insurance plan if hospital bills exceed the sum insured on your base health insurance policy. Either way, buying a life insurance policy is no longer an option, but an imperative. Regardless of the times ahead, it’s important to take control of our finances and have a stronger financial plan.