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3 personal finance steps to stay in control of money matters during COVID-19

Having adequate health and life insurance, and an emergency fund worth six months' expenses are critical to navigating the pandemic

June 25, 2021 / 09:55 AM IST

The outbreak of COVID-19 has wreaked havoc on the finances of many across different sectors. With job losses, pay cuts and closed businesses, people are forced to rethink the state of their personal finances. While the families coped with the losses due there being  little to no income, the health crisis cast a long shadow over their life’s savings. The impact of COVID-19 demands a new approach in dealing with the rapidly changing environment.

The lessons learned on personal finance in the pandemic can be put to good use regardless of the economic future. While things are not going to remain bad always, it is important to have an emergency fund and different income streams. It is not easy for people to pay back the health loans or emergency loans that had to be taken as a result of poor financial planning.

Insurance for health and life

For any financial plan to be sound, it is essential to have insurance as a part of it. If there’s one thing that the pandemic has taught us all, it is to be prepared for the unexpected. While an insurance cover saves you from having to use your emergency fund, it protects your loved ones as well.

Therefore, health and life insurance are a crticial part of any financial plan. Hospital bills are the hardest to pay without an insurance cover, hence buy a policy that takes care of your needs. Further, you would want to secure your family member, for which you would need a life insurance policy.

COVID-19 Vaccine

Frequently Asked Questions

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How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

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Building an emergency fund

While an insurance cover will protect you during health emergencies, you will need an emergency fund for an unpredictable situation such as a sudden job loss or pay cut. A key component of a sound financial plan, an emergency fund is a necessity. It can be thought of as a shock absorber. An emergency fund should cover at least three to six months of household expenses. It takes time to build an emergency fund.

You need to calculate your expenditure and start saving a certain chunk of money every month. Once you have a fixed amount, don’t leave it in the savings account. Keep about 50 percent of the sum in savings and invest the rest in bonds that are easy to liquidate. It will not only help earn interest on the amount, but also make it risk-free.

Have a diversified portfolio

After spending on insurance and saving for an emergency fund, the next step is making an investment. It is vital to have a single portfolio that is a blend of different investments. The idea is to have varied investments for a higher return and lower risk. It is a battle cry for financial planners, fund managers and individual investors alike. The central thesis of diversification is to not put all your eggs in one basket.

While building a diversified portfolio, consider assets that have low or negative correlations. Further, assets such as mutual funds or exchange-traded funds are good enough to have diversity, but one must remain cautious of hidden costs and trading commissions. Furthermore, equities are not the only avenues to invest; you can always consider gold or gold bonds. Investing can be fun, educational, and rewarding. All you need is a disciplined approach and diversification to be rewarded even in the worst of times.

Also read: How portfolio diversification ensures that you reach all your money goals

Long-term investments

These may include stocks, bonds, real estate and cash. Long-term investments come with their own risks and one must be patient for a long period of time to earn higher rewards. It also means that you must have enough capital to afford such long period waiting periods.

Apart from taking informed decisions, pick a strategy and stick with it. It is extremely important to remain focused on your financial goals and believe in your plan.

The final word on personal finance is to be clear about your goals and take small steps towards achieving them. It takes time to build a fool-proof financial plan, but you can’t give up if it’s not happening overnight, because it won’t. But whatever small steps you take will cover a long distance in your financial journey.
Pranjal Kamra is CEO of Finology
first published: Jun 25, 2021 09:55 am