The coronavirus pandemic has wreaked havoc across the globe, affecting the lives of numerous people. Besides creating a public health crisis, the impact of this viral outbreak on the economy has been severe. With several industries taking the direct hit, many people have been laid off or furloughed. At an uncertain time like this, it is natural to worry about whether you have enough savings, whether and how long you can survive without a job, etc.
These are valid concerns as the current crisis has also disrupted our personal finance plans. In this context, let us look at 5 personal finance concerns.
1. Availability of an emergency fund
The pandemic has made us realize the importance of having a contingency fund that can cover 3-6 months of basic living expenses, including food, rent, and monthly utility bills. This will not only offer a financial cushion in the event of a job loss or pay cut but also act as a source for emergency cash for unprecedented expenses such as hospitalization. The ideal way to build an emergency corpus is to take 10-15% of your monthly salary and put it in a savings account.
2. Not having the right portfolio of Life and Health Insurance Plans
With the pandemic continuing to spread, it is crucial to have the right insurance coverage. Life insurance should not be perceived as merely another investment vehicle but truly an “insurance” for some unexpected or accidental deaths. Therefore, it will be advisable for individuals to have a healthy mix of Term Life plans along with Endowment plans. The pandemic has also brought into focus the need for quality health insurance, which can offer broad coverage.
3. Building and maintaining a good credit score
When most financial institutions and banks tightened their offers for credit during the pandemic, the super-prime alone had access to pre-approved loans or got credit when they urgently needed it. Having a good credit score or access to a lender who forgives these credit scores like FlexSalary should be of importance. When emergencies come calling, so should emergency cash beyond the savings. While many may not focus on this aspect, building and maintaining a good credit score is the need of the hour.
4. Purchasing immovable assets in an environment of low-interest rates and uncertain home values
One of the most important questions financial advisors are trying to answer is if this is the right time to invest in immovable assets (home) considering low-interest rates, which are expected to stay low and trend lower in the immediate short-term to medium-term. The competing factor is the uncertainty on the current home values as most industry experts are not being able to predict both the short-term and the long-term impact of this pandemic and its economic fall-out on the home values.
5. Balancing leverage and maintaining a healthy debt to income ratio
Most of the salaried individuals are pretty leveraged with Home Loan, Car Loan, and EMIs on Consumer Durable/gadget purchases. There is a sweeping recognition of balancing leverage and maintain a healthy debt to income ratio with your current income and not necessarily on future earning potential. As this pandemic has sorely demonstrated that virus particle measuring 0.1 microns in diameter can cause a giant-sized hole in anyone’s future earning potential, it should be of utmost priority that you maintain a healthy debt to income ratio.
These concerns are much more exacerbated for people in low-income groups and weaker socio-economic strata, as they have very limited access to credit and whatever little access they have is really high-cost credit. It is incumbent upon the RBI-licensed lenders to expand access to credit to such customers to provide offerings that provide such customers with meaningful and flexible credit.