Did your income change during COVID-19 crisis? Here are some tips to get back on track

A crisis like coronavirus is no time to panic; it’s the time to make strategic money moves.

Did your income change during COVID-19 crisis? Here are some tips to get back on track

The coronavirus pandemic has not been financially easy on anyone. Over a third of MSMEs are shutting down, and even major MNCs have laid off thousands of employees. Chances are there’s been a change, slight or significant, in your income pattern. While a salary deferment may be manageable, a pay cut or job loss can be hard to deal with. Here are some tips to take care of your finances in the wake of changes caused by the pandemic. 

Salary cut

  • Reduce discretionary expenses: One of the first things you should do is look at your monthly expenses and identify the ‘wants’ – basically things you can do without or at least cut down on. For instance, impulse shopping and eating out are the two most common discretionary spends. While you may be tempted to go all out once the lockdown ends, you should continue to hold back on spending in these areas. 
  • Reconsider your investment strategies: While it’s ideal to continue with your investments, it’s okay if you reduce them or put them temporarily on hold. Right now, it’s more important to build your cash reserves and have the liquidity to meet monthly expenses. A salary cut may not be permanent, and it doesn’t reflect on your capabilities, so going back to your previous income is only a matter of time. Once the situation reverts to normal, you can resume your investments too. 
  • Don’t touch your retirement savings: Drawing on your investments when faced with a pay cut is fine, but don’t touch your retirement contributions. It may seem tempting right now when you are trying your best to cope, but dipping into your retirement fund will hurt you in the long run. Don’t try to change or reduce the percentage contribution to your retirement fund – the absolute amount, however, might change considering the lower income. 

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Salary deferment

  • Delay certain expenses and purchases: Just as a part of your salary is deferred, you need to postpone certain expenses and purchases. Whether it’s buying a new phone or renovating your home – no matter how excited you are or how long you’ve been planning for it – delay these expenses until you get your salary in full. 
  • Continue with investments: When your salary is deferred, you should look at cutting down on your expenses but not your investments. The salary deferment is temporary and may cause a bit of short-term inconvenience. But you shouldn’t let that affect your long-term financial goals and miss out on the power of compounding. 
  • Focus on long-term goals: You should not lose sight of your long-term goals, whether it’s buying a new car or going on your dream vacation. Have a chat with your financial advisor or your partner and figure out what changes you need to make in your investment strategy to meet these financial goals despite the salary deferment. 

Job loss

  • Budget differently: The first thing you need to do is change your budget. You can’t continue spending as you previously did. You’ll have to be prudent when separating your wants from your needs and cut out certain lifestyle categories completely for a while, such as shopping. Figure out how much you will need for your groceries, utilities, and other fixed expenses that are non-negotiable. 
  • Use your savings and investments: Don’t hesitate to draw on your savings and investments. Your emergency fund exists precisely for times like this. If that’s not quite enough, cash in on your investments such as mutual funds and fixed deposits. But stay away from your retirement funds. Taking a loan to pay your bills should be a last resort. 
  • Evaluate your debt: The repayment of high-interest loans should be your priority. While the moratorium offered can be helpful, it’s important to remember that it’s merely a grace period for your EMIs and not a waiver. You’ll have to pay it eventually. Also, avoid using credit cards to make purchases you can’t afford right now.

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Irregular income

  • Budget based on your lowest monthly income: You can’t budget as usual since your income can differ from month to month. The most strategic way to go about it is to take your lowest monthly income in the past year. For instance, if you earn Rs 30,000 a month on an average but there’s been a month when you earned only Rs 20,000, you should budget based on this lower amount. This technique will help you err on the side of caution. 
  • Stay away from consumer durable loans: While all online and offline retail stores offer attractive EMI offers to buy consumer durables, as a freelancer or part-timer you should stay away from them. You should only make purchases when you have the money and not against the future income that you anticipate. 
  • Save and invest strategically: During months that you earn more, it may be tempting to spend more, but those are the months you should capitalise on your investments. You may not be able to opt for SIPs owing to your irregular income, but you can make a lump sum mutual fund investment when you have the money. 

Related: 5 Ways you can get the most out of your 9-to-5 job and build wealth

In addition to managing your finances prudently, it’s also important to not lose hope and have a positive mindset. Take care of your mental health and overall well-being, and don’t stress too much about the change in your income pattern. This too, like everything else, shall pass. If you looking for some strategic ways on how to prepare yourself financially during a pandemic, this piece will guide you through  it. 


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