The bygone year has provided ample evidence to understand what it means to live in a VUCA (Volatile, Uncertainty, Complexity, and Ambiguity) world.
A once in a generation pandemic, the threat of which is still to subside exposed our fragility in several spheres, including finance.
With dipping revenues, organisations resorted to lay-offs, pay cuts, and delayed salaries, among others, and hospitalisation bills running into lakhs of rupees only added to the woes.
Worse, the loss of the family’s principal breadwinner to the virus zoomed financial stress levels to gigantic proportions.
As we welcome 2021 with high hopes of the novel coronavirus being tamed, let’s look at ways through which you can avoid being financially fragile this year.
Getting Yourself Covered
Insurance, be it life or health, is never purchased with the objective that you would one day submit claims. You buy it to protect your dependents and prevent drying up of savings in case of any untoward incident.
2020 brought to the forefront the need for adequate coverage like never before. Hence, it’s prudent to review your insurance needs and plug the existing gaps.
Buy a term plan to ensure your family is not left in a lurch in your absence, end up compromising on their living standards, and miss crucial financial goals.
While a term plan takes care of your protection need, equally important is to buy health insurance that safeguards your savings from depleting thick and fast in the event of a medical contingency.
Opt for a family floater plan that covers all your family members and avail a super top-up plan to fortify your coverage further.
An extension of your health plan, the benefits of a super top-up plan kick in when you have exhausted the maximum claim amount in a year of your regular health insurance plan.
Build an Emergency Fund
Always advocated by financial planners and advisors with gusto, being lax with an emergency fund is an absolute no.
Having a ready-made liquid reserve not only helps address a contingency with ease but also ensures crucial commitments such as EMIs, insurance premiums, etc., are not missed.
Emergencies can occur even in the best of times, and therefore, it’s prudent to build a fund that can keep you financially afloat and address your needs.
While earlier it was advisable to have an emergency corpus equivalent to 3 to 6 months’ expenses, the pandemic has shown that the corpus should at least be of a year, if not more.
Invest in a mix of assured-return and market-linked instruments such as sweep-in fixed deposit and liquid funds to accumulate a corpus that can sustain you amidst a crisis. Do remember that returns are secondary in the case of this fund. It’s the ease of access to funds that supersedes returns.
There are many forms of debt and not all of them are bad. A loan availed to buy a home or pursue higher education helps you build an asset and acquire skills get a leap in your career.
However, lifestyle debt can not only jeopardise your financial goals but also put you in a tight spot in case of a black swan event like the COVID-19 pandemic.
Easy availability of funds on the tap makes it easy to mount on debt that can be a cause of heartburn later. Hence, it’s in your best interest to keep unnecessary debt at bay, particularly related to lifestyle. Equally essential is to keep discretionary expenses at the backburner and follow a strict budget.
Don’t Exit Sound Investments
When markets officially entered into a bear phase in March 2020, wiping out gains made over the year in no time, most investors wasted no time to exit their mutual fund and stock investments turning their notional loss into actual ones.
However, markets rebounded spectacularly making up lost ground in a record time with benchmark indices touching new highs.
The bull run added to the wealth of those who didn’t flinch and remained committed to their investments when markets nosedived during the period when COVID-19 cases saw a massive surge forcing authorities to induce lockdowns. Indian markets have weathered such downturns in the past only to emerge stronger.
2021 brought good news with two vaccines in India being approved for emergency use and with the vaccination drive slated to begin soon, things are expected to return to normalcy levels.
Imbibing the above lessons will not only strengthen your finances but also help you be on a solid footing in the years to come.
Happy New Year!Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.