- Date : 12/07/2020
- Read: 7 mins
- Read in हिंदी: आर्थिक मंदी- व्यक्तिगत वित्त के लिए क्या करें या क्या न करें
Don’t let the coronavirus outbreak make you anxious to the point of inaction. Instead, think strategically to reduce its blow on your finances.
The last couple of months have been something no one could have predicted in their wildest dreams. You might have rushed to the grocery store to stock up on essentials, received hundreds of messages on social media about the coronavirus outbreak and lockdown, and seen dozens of forwarded memes on social media on social distancing and quarantine. It’s quite possible that you might also be experiencing financial anxiety, what with all the discussions about stock markets crashing and the slowdown of the economy.
It’s all very surreal and overwhelming. But the important thing to remember is not to panic. The moment you start panicking, you lose the ability to think rationally and make informed decisions. It’s much healthier to acknowledge the global health crisis and the possible global recession, and look at making certain strategic moves when it comes to your personal finances.
Related: 5 Economic concepts you need to know
So, here’s a list of critical dos and don’ts to follow in order to tide over the impending economic slowdown.
1. DO continue with your SIPs
The first reaction of everyone around you – co-workers, friends, relatives – would be to stop investing in SIPs. Don’t follow their lead because that’s one of the biggest mistakes an investor can make in an economic slowdown. This is actually the best time to continue investing!
When the market turns weak, the NAV (net asset value) of funds go down, and each SIP gets you more units. A few years later, when the economic situation is better and the market recovers, these units will add up to a huge corpus. So, while it’s natural to worry, just remember that historically it’s those investors who stayed in it for the long run and stuck it out through lean market periods who gained the most.
Related: Myths about SIPs you shouldn’t believe
2. DO diversify into gold
When is it not a good time to invest in gold? Given the current economic scenario, now is the best time to diversify by investing in gold. Economic crises have come and gone across the world, but gold is the one thing that has not failed in its value. The kind of safety gold as an investment provides is the main reason why experts recommend that one should have at least 10% gold in their investment portfolio.
The best part is that these days you can look beyond physical gold. In fact, instead of opting for physical gold such as bullion or ornaments, opt for gold sovereign bonds or gold exchange traded funds (ETFs). Why, you ask? Well, with physical gold, the returns are lower because of making charges. Besides, there’s always a risk in terms of purity, safety, and liquidity.
Related: Factors that affect gold prices in India
3. DO reduce discretionary expenses
More than ever before, this is the time to sit with your family and have a discussion. Talk to your spouse and even your kids, depending on their age and maturity. As a family, you need to get your monthly discretionary expenses as low as you can. Due to coronavirus and the lockdown, you would have realised that eating out, shopping, etc. are all avoidable luxuries.
Of course, there should be a balance. If you uninstall food and retail apps that keep sending you notifications of discounts and offers, you may find it easier to continue keeping your discretionary expenses down after the lockdown is lifted and things go back to normal. Focus a little more on budgeting now; make use of the extra time you have thanks to working from home, and chalk out a plan.
4. DO increase your emergency fund
Having access to cash or liquid funds is important in the present scenario. The uncertainty is high with a global pandemic and the predicted global recession. In such a situation, it’s important that you increase your emergency fund so you aren’t strapped for cash when you really need it. You may have experienced it recently with the lockdown. If you have enough liquid funds, stocking up on a month’s worth of groceries and essentials won’t pinch that much.
Moreover, despite extraordinary situations like the COVID-19 pandemic, you still have to continue paying rent and utility bills. If you find yourself low on cash in emergencies like this, it will add to the stress and make everything seem overwhelming.
Next, let’s look at what to avoid.
Related: A step by step guide to building an emergency fund
5. DON’T opt for volatile funds
While you should continue investing, you should be careful to not invest in volatile funds. Considering the economic slowdown and impending global recession, hybrid funds are your best bet. They are structured in a way that limits the volatility of returns and are therefore well-suited for uncertain market scenarios. By opting for hybrid funds, your risk goes down, but you still get equity exposure.
Regular hybrid funds fall into three categories – conservative, balanced, and aggressive. All of these always maintain some basic exposure to debt as well as equity. However, in conservative funds there’s a higher debt component, while the reverse is true for aggressive funds.
6. DON’T change your job
Hate your current job? You may have plans to go down a different career path, or quit altogether and start your own business – but think again. With the effect of coronavirus on the economy and the expected slowdown, this is literally the worst time to think of putting in your papers, demanding a higher pay, or negotiating better terms.
The financial health of every company, especially startups and MSMEs, has been significantly hit by the COVID-19 pandemic, and it’s going to have a significant macroeconomic impact. At this point especially, with a big question mark hanging over everything, you don’t want to invite further hassle and uncertainty to your life by changing your job.
Related: Lost your job? Here are 5 things you must not do
7. DON’T invest in property right away
Yes, real estate is the one asset that never depreciates and is hence a favourite go-to investment option. However, with the slowdown in the economy, you should stay away from real estate right now. Whether it’s buying your first home or buying a second home for investment purposes, put your plans on hold for now.
Housing finance companies and builders might offer tempting discounts and low interest rates, but it’s all simply to lure customers. The current state of the Indian housing market – even in cities like Mumbai, Delhi, and Bangalore – is not the best. Thanks to the economic impact of COVID-19, things aren’t going to get better for at least for a couple of years.
Related: Investment tips to prevent the falling GDP from affecting you
8. DON’T take on new debt
The last thing one should do in the current economic slowdown with all its associated financial anxiety is to take on more debt. If you have debt right now, you will know first-hand how the existing scenario is making it tough to meet EMI payment obligations.
As discussed above, whether it’s a housing loan or a car loan, you should put off your purchasing plans for a while. In fact, you must focus on coming up with a new strategy to get rid of your current debt as quickly as possible.
Once you’ve taken the necessary steps, make sure to share them with your friends and family. Tips like these will prove more helpful than constantly exposing yourself to panic-inducing news and updates. Here's how to be on the right side of debt.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
The last couple of months have been something no one could have predicted in their wildest dreams. You might have rushed to the grocery store to stock up on essentials, received hundreds of messages on social media about the coronavirus outbreak and lockdown, and seen dozens of forwarded memes on social media on social distancing and quarantine. It’s quite possible that you might also be experiencing financial anxiety, what with all the discussions about stock markets crashing and the slowdown of the economy.
It’s all very surreal and overwhelming. But the important thing to remember is not to panic. The moment you start panicking, you lose the ability to think rationally and make informed decisions. It’s much healthier to acknowledge the global health crisis and the possible global recession, and look at making certain strategic moves when it comes to your personal finances.
Related: 5 Economic concepts you need to know
So, here’s a list of critical dos and don’ts to follow in order to tide over the impending economic slowdown.
1. DO continue with your SIPs
The first reaction of everyone around you – co-workers, friends, relatives – would be to stop investing in SIPs. Don’t follow their lead because that’s one of the biggest mistakes an investor can make in an economic slowdown. This is actually the best time to continue investing!
When the market turns weak, the NAV (net asset value) of funds go down, and each SIP gets you more units. A few years later, when the economic situation is better and the market recovers, these units will add up to a huge corpus. So, while it’s natural to worry, just remember that historically it’s those investors who stayed in it for the long run and stuck it out through lean market periods who gained the most.
Related: Myths about SIPs you shouldn’t believe
2. DO diversify into gold
When is it not a good time to invest in gold? Given the current economic scenario, now is the best time to diversify by investing in gold. Economic crises have come and gone across the world, but gold is the one thing that has not failed in its value. The kind of safety gold as an investment provides is the main reason why experts recommend that one should have at least 10% gold in their investment portfolio.
The best part is that these days you can look beyond physical gold. In fact, instead of opting for physical gold such as bullion or ornaments, opt for gold sovereign bonds or gold exchange traded funds (ETFs). Why, you ask? Well, with physical gold, the returns are lower because of making charges. Besides, there’s always a risk in terms of purity, safety, and liquidity.
Related: Factors that affect gold prices in India
3. DO reduce discretionary expenses
More than ever before, this is the time to sit with your family and have a discussion. Talk to your spouse and even your kids, depending on their age and maturity. As a family, you need to get your monthly discretionary expenses as low as you can. Due to coronavirus and the lockdown, you would have realised that eating out, shopping, etc. are all avoidable luxuries.
Of course, there should be a balance. If you uninstall food and retail apps that keep sending you notifications of discounts and offers, you may find it easier to continue keeping your discretionary expenses down after the lockdown is lifted and things go back to normal. Focus a little more on budgeting now; make use of the extra time you have thanks to working from home, and chalk out a plan.
4. DO increase your emergency fund
Having access to cash or liquid funds is important in the present scenario. The uncertainty is high with a global pandemic and the predicted global recession. In such a situation, it’s important that you increase your emergency fund so you aren’t strapped for cash when you really need it. You may have experienced it recently with the lockdown. If you have enough liquid funds, stocking up on a month’s worth of groceries and essentials won’t pinch that much.
Moreover, despite extraordinary situations like the COVID-19 pandemic, you still have to continue paying rent and utility bills. If you find yourself low on cash in emergencies like this, it will add to the stress and make everything seem overwhelming.
Next, let’s look at what to avoid.
Related: A step by step guide to building an emergency fund
5. DON’T opt for volatile funds
While you should continue investing, you should be careful to not invest in volatile funds. Considering the economic slowdown and impending global recession, hybrid funds are your best bet. They are structured in a way that limits the volatility of returns and are therefore well-suited for uncertain market scenarios. By opting for hybrid funds, your risk goes down, but you still get equity exposure.
Regular hybrid funds fall into three categories – conservative, balanced, and aggressive. All of these always maintain some basic exposure to debt as well as equity. However, in conservative funds there’s a higher debt component, while the reverse is true for aggressive funds.
6. DON’T change your job
Hate your current job? You may have plans to go down a different career path, or quit altogether and start your own business – but think again. With the effect of coronavirus on the economy and the expected slowdown, this is literally the worst time to think of putting in your papers, demanding a higher pay, or negotiating better terms.
The financial health of every company, especially startups and MSMEs, has been significantly hit by the COVID-19 pandemic, and it’s going to have a significant macroeconomic impact. At this point especially, with a big question mark hanging over everything, you don’t want to invite further hassle and uncertainty to your life by changing your job.
Related: Lost your job? Here are 5 things you must not do
7. DON’T invest in property right away
Yes, real estate is the one asset that never depreciates and is hence a favourite go-to investment option. However, with the slowdown in the economy, you should stay away from real estate right now. Whether it’s buying your first home or buying a second home for investment purposes, put your plans on hold for now.
Housing finance companies and builders might offer tempting discounts and low interest rates, but it’s all simply to lure customers. The current state of the Indian housing market – even in cities like Mumbai, Delhi, and Bangalore – is not the best. Thanks to the economic impact of COVID-19, things aren’t going to get better for at least for a couple of years.
Related: Investment tips to prevent the falling GDP from affecting you
8. DON’T take on new debt
The last thing one should do in the current economic slowdown with all its associated financial anxiety is to take on more debt. If you have debt right now, you will know first-hand how the existing scenario is making it tough to meet EMI payment obligations.
As discussed above, whether it’s a housing loan or a car loan, you should put off your purchasing plans for a while. In fact, you must focus on coming up with a new strategy to get rid of your current debt as quickly as possible.
Once you’ve taken the necessary steps, make sure to share them with your friends and family. Tips like these will prove more helpful than constantly exposing yourself to panic-inducing news and updates. Here's how to be on the right side of debt.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
