With 2 Lakh+ infections and 8K+ deaths, Coronavirus is a pandemic to be taken seriously.
Wash your hands, keep social distance, and work from home. All good advice to protect your physical health.
However, what about your financial health?
Recession: Why You Need to Be Prepared – Today?
The markets around the world are in turmoil.
In India, SENSEX and NIFTY have crashed, wiping out thousands of crores of investor wealth.
And, it’s no secret that we are heading for a recession.
Governments across the world are announcing bailout packages worth trillions of dollars.
The last time markets were so volatile was during the 2008 crash.
So we must prepare to face the realities of recession – potential job loss and liquidity crunch. Add to this, the potentially massive healthcare costs associated with the Coronavirus pandemic.
How to Recession-Proof Your Household?
Here are a few ways to be prepared in the wake of the coronavirus pandemic.
#1: Build an Emergency fund
Setting up an emergency fund to cover the next 6 -12 months of your expenses, including EMIs, should be your priority.
If you already have a corpus, re-evaluate if you need to top it up.
Pro Tip: Follow this detailed guide to building an emergency fund.
#2: Take comprehensive health insurance for your family
Forget Corona. Any unexpected medical emergency can have a considerable impact on your finances.
Now would be an excellent time to evaluate your health insurance coverage and ensure you have adequate coverage.
I recommend at least a Rs 25 lakh coverage for your family. Don’t forget that you can claim tax benefits on the insurance premium paid!
Pro Tip: Consider taking insurance that covers Corona Virus inflicted hospitalization and related expenses.
Digit Insurance in India earlier offered a COVID19 specific health insurance policy. However, they have now merged that into their regular health insurance policy.
#3: Don’t stop investing
During such volatile times, you might be confused about investing your money.
If you have already maxed out your emergency fund, then consider investing in equity. Markets will eventually recover. So buying now will not be a problem in the long run.
But that’s easier said than done. I know.
You can also consider investing the money in a liquid fund. Or put them into a short-term bank FD.
But don’t let your money lie idle in your savings bank account. Worse, don’t spend it all!
Pro Tip: Move your money into a liquid fund. When the markets stabilize, move the money from liquid funds into equities.
#4: Be prepared for job loss
Until a few years ago, I thought that I would never get laid off. My skill set is highly valuable, and I have had multiple job offers.
But when reality strikes, you wake up.
With the current economic impact across the globe, you might likely get laid off.
Here’s how to deal with a job loss, if it should happen to you.
#5: Increase liquidity
If we go into a full-blown recession, or worse, a depression, loans will be hard to come by.
Most lenders would be extremely cautious about who to lend. When you need a loan the most, you might not get it.
If there are panic and mass withdrawals, mutual fund houses can impose restrictions on withdrawals. In September 2015, JP Morgan Asset Management India had to gate two of its debt schemes and limit withdrawals.
So it’s essential that you have liquidity. Expenses for 2-3 months should be easily accessible to you in the form of cash or cash equivalent.
Pro Tip: Your credit card provides you liquidity. If you have a credit card, speak with your bank to increase your credit limit. Or apply for a new credit card to increase your overall limit.
#6: If you don’t have a credit card, consider alternatives
Usually, a credit card helps you to buy something and pay for it later.
Sometimes, your credit limit might be low. Or, you might not qualify for a credit card due to a low CIBIL score.
Don’t fret; there are alternatives.
Several startups in India allow you to buy-now and pay-later.
Pro Tip: Use pay-later options only if you need them. It’s easy to get into a debt trap without realizing when you defer payments.
#7: Scale back your spending
It goes without saying. In tough times, you cut back on your spending.
Take a look at your spending. Spot all the subscriptions and other non-essential spending patterns.
Thanks to partial or total shutdown in most states, the option for you to spend money is limited. But Amazon, Flipkart, Swiggy, and Zomato are open for business 🙂
If you can cut down on something, please do.
Over To You:
How are you financially preparing for the oncoming storm? Let me know in the comments section below.