News: Conserving cash to dealing with debt: 6 ways you can fight the covid money crisis-20-04-2020
Updated On : 20-04-2020
Liquidating assets to pay off debts is recommended only if you find it difficult to pay EMIs.
By Madhusree Mallik
The ongoing lockdown is the new normal in our lives. As the country fights to keep the dreaded Covid at bay by staying indoors, the spending habits of households are undergoing a change. With little opportunity to spend, except on basics, many are finding out what actually construes necessities and what were purely discretionary expenses masquerading as essential costs.
The current situation has also taken a toll on the economy. With the prospect of job losses and slashed salaries very real, we focus on six steps every individual needs to consider to navigate these extraordinary times. From conserving cash to dealing with possible loss of income, from eliminating debt to making an inventory of assets, from learning something new to steering clear of pitfalls, we tell you how you can tide over this time with minimum pain.
1. Be careful with cash
With no malls to go shopping to, no restaurants to eat out in, no fuel bills to take care of and no scope of online shopping, the lockdown would have seen your monthly household expenses nosedive. Treat this period as a rehearsal in frugal living. No one can predict with any certainty when life will be normal again. With the economy taking a huge hit, the spectre of job losses and pay cuts appear too close for comfort.
As a rule, one should have at least six months’ of monthly expenses secured in an emergency fund precisely for uncertain times like these. “The utility of this contingency fund is only realised during such times. If you don’t have that kind of corpus, it’s very important to cut back on expenses and keep money aside to meet non-negotiable expenses,” says Prableen Bajpai, Founder and Managing Partner, FinFix Research and Analytics.
The first step would be to put all discretionary spends on the backburner. “Keep the expenses at the minimum as if it is an emergency. Conserve the bank balance. For as long as needed,” says Uma Shashikant, Chairperson, Centre for Investment Education and Learning. Every little expense cut down on is that much saved. Even during the lockdown, resist the temptation to order food online. Cooking basic meals from scratch at home is not only cheaper but safer too. Take this opportunity to review and prune myriad paid subscriptions. Hold on to only those you use regularly. Unsubscribe from the rest.
2. Brace for the pink slip or a pay cut
With production and consumption grinding to a halt, multiple sectors are facing rough weather. This translates to troubled times for those working already and those looking for employment. According to Devashish Chakravarty, Founder and CEO, Quezex.com, threats for employees include job loss, pay cuts and delayed salary. It can also mean partial deferred pay, cancellation or deferment of performance bonus for the previous year and conversion of fixed salary into performance based variable salary. Job seekers may have to deal with cancellation of interview, delay in interview and feedback, renegotiation of job offer, delay in joining date and cancellation of job offer.
Employees who have been furloughed/ fired should, first take solace that they have been victims of collateral damage and this turn of events is not due any innate shortcoming. “Prepare by budgeting for substantial or complete loss of income. Cut living costs, explore alternate personal income sources, continuously reach out to the market and network for new opportunities,” is Chakravarty’s advice.
While it is good to be prepared for the worst, the outcome may be different. “Whether or not this will come to pass, depends on how this pandemic ‘ends’ and the subsequent appetite for reverting to the ‘old normal’. It may so happen that we will find equilibrium at some lower level for a few quarters, as everyone digests the impact of something so novel and pervasive,” says Jayant Pai, Head, Marketing, PPFAS Mutual Fund. For some, new opportunities may appear. “As businesses try to cut costs, there would be a demand for freelancers and consultants,” says Dhirendra Kumar, CEO, Value Research. Keep your ears to the ground for such opportunities.
