Tough times don’t last forever; they simply leave an impact that becomes hard for one to overcome it. The ongoing Covid-19 pandemic has certainly taught us a few financial lessons that financial planners always swore by. This article focuses on important investment lessons that one should learn to be fully prepared for handling uncertain situations.
Covid-19 pandemic has not just put one’s health at risk, but also an individual’s financial well being and the Indian economy all together. The pandemic has not just led to pay cuts, job losses, but also caused a huge blow to the well-settled businesses. The situation of recession seems to be an unavoidable hardship in such times, as it has become difficult for Indian families to cater to their basic needs even. These uncertain times or to say the lockdown period has taught us to be more financially prepared in life. Here are a few important investment lessons you should learn from coronavirus.
Defiantly, availing a loan is a good option in times of a financial emergency; the amount you borrow can easily bail you out of difficult situations. However, you must evaluate your repayment capacity before availing a loan. Borrow only as much as you can repay. A loan can be a great way to quickly finance your life goals or buying house or a car too. But non-repayment of the loan amount can land you in a debt trap that would become difficult for you to get out of. Also, the immense psychological stress that non-repayment of loan causes can be unbearable for few. Especially, during tough times that we are in today that has caused the loss of income to many borrowers, repayment becomes all the more difficult in the future despite the EMI moratorium offered by the government.
Buy a health insurance plan:
Even though you may be having an employer-provided health plan, you shouldn’t rely on it forever. With tough times like Covid-19 causing job loss, the employer-provided health plan would not provide any coverage to you. Managing a health emergency at such times too becomes difficult. If you don’t have a health insurance policy, you may have to avail of a loan or liquidate your investments, which would further drain your financial portfolio. Therefore, buying a health insurance plan for you and your family members is the right choice. Remember, an employer provided health plan will not provide you adequate coverage, will lack necessary add-on, and even lapse if you lose the job. Also, when buying a health plan, check on factors like room rent, riders, coverage amount, waiting period, and co-pay.
Have an emergency fund in place:
At a time when we are losing out on our source of income, relying on an emergency fund can be of great help. In the absence of a regular flow of income, one can use the fund amount to cater to day-to-day expenses or any other financial emergency. When planning an emergency fund, ensure that the fund amount is at least six times our monthly income or expenses. You can park your emergency fund in fixed deposits or mutual funds to gain interest and also due to the easy of liquidity. If you haven’t built an emergency fund then now is the time to do so to ensure a pandemic like corona does not affect your financial health. You can start building an emergency fund by utilizing your declining expenses during the lockdown and cutting down on unnecessary costs.
Prepare your will:
It is very common for people to delay their nomination facility. If they pass unexpectedly, for instance, due to pandemic like the situation then it would become difficult for heirs to claim the inheritance. At times, inheritance can also lead to legal issues that would cause not just personal stress, but also add up to their financial burden. Therefore, you must not delay in preparing your will and always ensure you have completed nomination formalities in all your funds, policies, and other investments. So, making a will ensures your legal heirs don’t have to fight for their rights in your absence.
Diversify your investment portfolio:
The Covid-19 crisis has deeply affected various investment avenues. The high volatile nature of the market has wiped off years of profit. The deposit rates have witnessed a downfall and small saving schemes are offering low returns. However, gold investments have offered good returns. The lesson learned here is, one needs to build a diversified portfolio to minimize the overall investment risk. With this, it is also important that you align your investments with your risk appetite, income, liquid investment, and financial goals. Also, do not discontinue any of your investments, because the longer you stay invested, the higher your chances of getting good returns.
Invest in a term plan:
A term insurance is a type of life insurance plan that offers financial coverage to your family in case of death of the insured person. The coverage is provided for a limited tenure i.e. for a specific number of years. This type of insurance plan offers high coverage at a low premium. In uncertain times like corona, a term plan plays a vital role as an uncertain event like death or disability of the insured can cause financial stress to the family. At such times, a term plan is an excellent way to build a financial safety net for the family as a high coverage amount is offered to the family members. The coverage amount offered can help the family take care of their day to-day needs and can easily help your family settle your loans and pay off all your liabilities in an easy way.
We often take life for granted and don’t invest in any insurance or investment plan. But it is the times like these that teach us the importance of building a strong financial plan to be able to sustain our basic needs at least. You can also think of building an alternate source of income by taking up a part time job, freelancing, renting out property or others.
The author is head and founder of Mumbai-based financial advisory firm Money Mantra. He can be reached at email@example.com