- Date : 24/09/2020
- Read: 4 mins
Prudent money management practices are going to be key in creating a buffer against financial uncertainties
Sustained livelihood is an issue that is plaguing everyone’s mind since the COVID-19 pandemic hit India over five months ago. Even though the government is trying its best to improve the healthcare and economic situation, it is important that we brace ourselves for unpredictable times ahead.
Prudent money management practices are going to be key in creating a buffer against financial exigencies and maintaining our peace of mind. If you are looking at suggestions on how to manage money and improve your financial situation, here are 7 mistakes you must avoid at any cost.
1. Not enforcing complete budgetary control
It is extremely important to have your monthly expenses under control at this time. Create a budget and make a proper allocation for all expense heads. Go through the bills over the last 3–6 months and prioritise various expenses such as groceries, rent, utilities, etc. Use a budget calculator or an app to keep your spends in check.
2. Going ahead with discretionary expenditure
It would be good to postpone large discretionary expenditures until things return to normal. Renovating your kitchen, buying a new gadget, or upgrading your wardrobe are not pressing needs. Your funds can be allocated better in order to maintain liquidity and improve savings.
3. Neglecting to save money every month
If you continue to spend as before, don’t be surprised if you aren’t left with much money at the end of the month. This is especially counterproductive for your long-term savings goals. Earmark a certain percentage of your monthly income for various financial goals and create an auto-invest plan that will debit funds from your savings account as soon as your salary is credited. This will make investing easier and help bring in discipline.
4. Not having an adequate emergency fund
An emergency fund is created precisely for an event like this. If there’s any uncertainty regarding your business or job continuity, such a fund can help to tide things over without having you dip into your savings – or worse, sell your assets. It is advisable to have at least 3–6 months of your monthly expenses tucked away in a liquid fund or fixed deposit that can be easily accessed when required.
5. Inadequate tax management
You may end up paying more tax than required or blocking your funds with improper tax management. If you receive a large tax refund each year, it means a lot more of your income is being deducted at source than required. Speak to your financial advisor and ensure that you are maximising your tax deductible investments such as ELSS, PPF, and insurance premiums. Such measures will help you save on tax and build financial security.
6. Taking on more debt or not prioritising repayment
Interest on debt can really eat into your savings and throw your financial plans into disarray. Avoid taking on any unnecessary debt during this period. Minimise the use of credit cards and ensure that you settle the due amount in full every month. Prioritise existing debt payments based on interest cost so that you can become debt-free as soon as possible.
7. Stopping or withdrawing your investments
Your existing portfolio may not be in the best of health, but do not let fear get to you. Short-term volatility will not have an impact on your long-term goals such as retirement planning. As long as your financial plan is strong, it is advisable to continue with your investments, especially through a Systematic Investment Plan (SIP) that can help you average out your purchase cost.
To safeguard your financial future, it is important to take remedial steps on a war footing. Even small steps towards managing your finances will have a positive impact on your goals. Draw up a supplementary financial plan on how to manage money over the next 3–6 months and share it with your family. Pool resources and work together until the economy is ready to bounce back. How to prepare yourself financially during a pandemic. Read this for some insightful tips.