Covid-19 has thrown life out of gear. It has pushed the entire nation into lockdowns, affected industries, crushed value chains and stressed household finances. Unemployment has risen to unprecedented levels globally. Ashish’s personal finances will not be immune to this crisis. He is a senior management professional who was a consultant with the hotel industry until recently. Now, his financial situation has turned unstable. He has credit card bills and EMIs to pay and other routine bill payments that need to be taken care of. Fortunately, he has managed so far, thanks to the emergency fund he had built over the past few years. However, with no relief in sight, Ashish is now worried and wonders how he should prioritise his funds.
Ashish must realise that smart money management is critical for survival through this period. This is the time to exercise care with liquidity and household budget. The family shouldn’t be frivolous with the cash. They must keep money handy and spend very carefully. They must be careful enough to not use this fund for discretionary or lifestyle expenses such as shopping or entertainment.
He may want unrestricted access to his cash saved in the banks in the form of savings, FDs or RDs. He should avoid doing that. Also, between him and his family members as account holders, he must split the liquidity among two banks in case one bank goes temporarily into moratorium. Given the situation of the economy, he must rely on banks with low NPAs and a good track record. They are currently his best bet.
Ashish must take a call to liquidate his assets and investments in an orderly manner, if necessary.
Further, he must churn his portfolio to move towards assets that provide liquidity/cash flow (deposits, bonds, equity) in the short term and refrain from piling up gold. In fact, partial gold holdings could be liquidated as well to benefit from the steep rise in prices. He must bear in mind the tax implications of the liquidation as well as the costs of liquidation such as penalties or exit loads.
The situation calls for calm-headed decisions that will help him fortify household finances and enable the family to emerge from the crisis unharmed. The family must focus on essential spending necessary for survival, safety and good health. It may be a while before the global economy rebounds. Therefore, live frugally and plan the spending carefully.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)