Life & Style

How to get ahead of your pay cut and make your finances pandemic-proof

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Five steps to make your personal finances pandemic proof

I’ve been paying a lot of attention to my bank accounts in the last few months. After all, the coronavirus pandemic has brought a great deal of uncertainty in our lives, especially in our finances.

Pay cuts, furloughs and bulk layoffs are no longer news as entrepreneurs and professionals navigate the worst job market of our times.

But though things are bleak, your bank balance doesn’t have to be. Now is the time to take a critical look at how you approach money and savings. Here’s a five-point guide to help you reassess and rethink your finances:

1. Take stock of your expenses

It is time to take a long, hard look at your credit card statements. “Identify your discretionary and fixed spends, and cut out as many of the former as possible,” says Akshay Golechha, CA, CFA and Columbia MBA graduate, who previously worked with Temasek, one of Asia’s biggest private equity firms. Discretionary spends include those ₹400 coffees, the six streaming service subscriptions you pay for despite watching only YouTube, the sales you’ve been shopping and the gourmet ingredients lying forgotten in your fridge. Adjusting with a pay cut necessitates a change in lifestyle, so start with what you know you don’t need. Most discretionary spends may seem insignificant, but you’ll be surprised by how they add up.

Things you should do right now
  • Update nominees on all your fixed deposits and mutual fund investments
  • Cut down credit cards. You don’t need more than two, especially if you’re not using them
  • Follow up on refunds. Whether it is income tax or refunds from cancelled holiday plans

2. What does your balance sheet look like?

Do you have debt? How many credit cards do you own? Where are your savings parked? Do you have savings at all? Drawing up a picture of what you have (your assets) and what you owe (your liabilities) will give you direction on what you need to do next. “If you have expensive debt like a credit card loan, or any high interest loans, pay that off first,” says Vivek Kaul, author of Bad Money. “It is okay even if you have to pause your investments or savings for this, but it is important to be debt-free at this time.”

If you’ve taken a pay cut, you will have to look at ways that you can save as much money (if not more) as you did before. You know how you’re constantly told to save for a rainy day? Well, we’re in the middle of a monsoon now.

3. Take a fresh look at your resumé

If you are in the job market, it might be tempting to say yes to any offer that comes your way. But it can hurt your career in the long run. “Money in the bank helps you make better decisions,” says Kaul. “If you are in a company where the risk of layoffs are high, start saving money so you are in a position where you don’t have to take the first offer that comes your way.” Upskilling and adding relevant certifications might also help, given that there has been a surge in online learning resources. And there’s excellent free content available. “People need to ask themselves, why should someone hire me?” says Golechha. “And they should work at getting better at answering that question.”

4. Stay away from what you don’t understand

Now is not the time to make headway in the stock market, especially if you don’t understand its intricacies. Invest in what you know and can understand, even if that only means fixed deposits and recurring deposits. In addition to traditional savings methods, “health insurance and terms insurance are a must, especially if you have a family and commitments”, says Kaul. “Many people are still dependent on their employers’ insurance, but when your job could be on the line, how can you depend on it? Make sure you’ve got your own health insurance cover.”

Identify your triggers
  • A large part of getting better at saving comes from knowing what makes you spend. Do you buy things when you’re feeling a certain way? Does browsing social media make you spend more?
  • Identifying (and consequently, eliminating) these triggers will go a long way in getting savvier with your finances.

5. Be honest and seek financial advice

I know people who would rather take a credit card loan with 25% interest per annum than ask their parents/friends for financial advice. But this is an especially stressful time for professionals in industries that aren’t “essential” and recent graduates who have to job hunt. “Don’t shy away from talking about money or asking others for help,” says Golechha. It doesn’t have to be a loan. It could even be a discussion on how things are faring for you financially, what you are doing to cope and maybe a trick or two about savings that you can pick up.

If the last three months have taught us anything, it is that living a minimal lifestyle is not as difficult as we believed it was. Inculcating fiscal discipline has never been more important. And if you don’t take stock of your money now, then when?

Lavanya Mohan blogs about personal finance at pennmoney.com.

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Printable version | Aug 4, 2020 11:42:42 AM | https://www.thehindu.com/life-and-style/five-steps-to-make-your-personal-finances-pandemic-proof/article31979805.ece

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