Second phase of Covid-19 pandemic has created never-seen-before health emergency in the country as the existing health infrastructure has started crumbling, leaving thousands dead every day. It has unleashed overwhelming fear among populations across the country as people infected with the virus are in real sense battling for their lives in absence of appropriate medical treatment. Even as lockdowns are cautiously being imposed in the most infected areas, people have once again started feeling the financial pressure in this uncertain situation. Media has been flashing reports revealing people losing their source of income fast and starving for want of food. There is a huge segment of working population who are genuinely fearing a major hit on their financial resources which can derail their domestic budgets, ultimately affecting their living standard.
Interestingly, during this ongoing extreme health emergency situation social media platforms remain flooded with posts and interviews of celebrities and other prominent personalities talking more about financial pressures mounting on them than deliberating upon the deadly Covid disease. When such a well-to-do segment expresses concern over deteriorating financial position, one can imagine the intensity of financial pressures which ordinary people are facing in this critical situation.
The magnitude of health crisis consuming thousands of lives irrespective of age and gender is a huge concern. Even as government is making all out efforts to control the deadly spell of the virus, the ugly scenes at hospitals flooded with patients succumbing to the infection suggests that all is not going to be well in the coming times.
Let’s not deliberate upon the crisis as never-seen-before medical catastrophe as fellow columnists are tracking the developments closely. However, in line with the nature of this column, let’s look at its impact on economy, especially its pressure on households finances. In fact, the outbreak of the virus is a double edged sword as it consumes life and simultaneously leaves economic cycle in shambles. Ultimately, the overall impact leaves household budgets in disarray .
There is no sign visible that Covid-19 will not end in immediate future. The difficult times on financial front would be there on long term basis. There is uncertainty in markets, people are losing jobs, incomes are dropping considerably and restlessness is growing at faster pace in public. However, there is always a way to overcome the crisis. Households need to take a few steps to manage their finances sensibly. Precisely, maintaining healthy finances is one of the most important arsenal to fight the crisis.
One should take a lesson from this ongoing crisis and put in place a financial plan which can help one to navigate the crisis situation. This is the time to realign financial goals and keep close watch on expenses as well as income stream.
Why is domestic budget important for families?
When we talk of financial convenience, then it is all about managing money. And the best tool to manage your money is to prepare a budget.
Basically budgeting lies at the foundation of every financial plan. It’s about understanding how much money you have, where it goes, and then simultaneously planning how to best allocate those funds to realize different goals. Creating a budget always looks just a tedious financial exercise, that too when you feel your finances are already in proper order. But you might be surprised at just how valuable a budget can be. A budget helps you to keep your spending on track. Don’t be surprised to see some hidden cash flow problems uncovered that might free up even more money to put toward your other financial goals.
Meanwhile, due to the uncertainty hitting income, you need to take drastic measures to ensure that expenses do not swell. Precisely, households need to re-evaluate their budgets and sort expenses as per need. They also need to demarcate between necessary and luxury items and take a decision to forego the non essential items for the time being.
How a budget can get derailed?
One should just ask himself a few questions. Am I living beyond my means? Am I earning well but still don’t seem to be saving enough? Have I ever thought of how to save most of the money I earn?
These are the most crucial questions which one needs to answer. Your answers will definitely lead you to live on a budget, avoid expensive habits and force you to save. It is not cumbersome. Just do a simple thing. Record your daily expenses, add them up and if you find that the total exceeds the amount of your income, then that it’s time to cut down on your spending. Once you have come up with a realistic budget, avoid the temptation to overdo when you are out shopping. Cutting back on your day-to-day expenses and resisting temptation makes it much easier for you to save.
Now a caution mark against plastic cards. Most of us fall prey to the lure of this kind of money. The convenience of credit cards is hard to resist but if you want to save, avoid paying through credit card whenever possible. You need to watch out while using your credit cards. However, if you can’t do without a credit card, find a card that does not charge high annual fees and comes with cash saving benefits.
Is it advisable to take route of bank loans to remain financially afloat during the times of crisis?
As many people were working in private sector and have now been rendered jobless, most of them have fallen into debt trap. They had taken personal loans and now have no such financial plan in hand on which they can fall back upon to fund their EMIs (Equated Monthly Installments). This has added more to their woes after losing their income stream.
So, the important lesson is that don’t fuel your lifestyle spends through loans. Instead, cut down on your expenses and lower your standard of living, if need be. In case your salary doesn’t get credited for long or finding a new job takes a while, the interest on loans will keep mounting, leaving you trapped in debt.
In case availing loan facility is inevitable, ensure your borrowing is prudent and need based. You should not err into borrowing just because loans are easily available. It’s important for you to consider your income before raising a loan. Never go beyond you repayment capacity. Always remember that your monthly budget and cash flow position is always changeable under the circumstances of repaying a bank loan.
However, the best way to remain afloat in the prevailing situation is to keep your expectations grounded, lower your expenses, invest in your career by constantly upgrading skills and build an emergency corpus. If things take an unexpected turn, the emergency fund could come to your rescue.
What is this emergency fund?
When we talk of financial creating an emergency fund, it means all about managing money. And managing money is not a big deal. But what is required is the developing habit of saving money. There are two things that may have kept many of us at bay for developing money saving skills.
Actually, saving right amount in the present times is most crucial.The amount saved can be invested in bank’s fixed deposit schemes, stocks, mutual funds, etc to create a future income. This way one can draw a balance between present and the future needs.
Notably, every time is the most opportune time to get into the “saving more” crowd and build a bigger rainy day fund by minimizing luxuries. Setting more aside and spending less on the non-essentials is the most crucial base of saving money. The point of good preparedness is to start doing it before you are forced to.
So, in a situation which is most of the times hit by economic slowdown and thousands rendered jobless, building an emergency fund makes sense. At least three to six months of living expenses is recommended for your emergency fund. Since an emergency is never planned, put your money somewhere easily accessible, like an interest-bearing savings account or money market account.
Precisely, just by making small changes in spending habits, you can stash away extra cash to meet any eventuality.