The ongoing Covid-19 crisis has not only adversely impacted the current financial situation for many of us, it has started disrupting our financial plans for the future as well. If we fail to make certain pragmatic readjustments in the current scenario, we may find it challenging to achieve our critical financial goals. With normal health risks and a stable income, many of us must have had detailed plans in place to meet our important financial goals in the pre-Covid times. However, the coronavirus outbreak has changed many things — the risk to our health has peaked, many of us are struggling with lower incomes, there’s uncertainty over our jobs and the investment markets have become sluggish. So, how can you bring our financial plans back on track after this setback? I’ve shared a few ideas regarding this which you may find helpful.
If you had plans to buy your first home in 2020, things might be different now. Your project completion might get delayed or you may be less confident about taking a long-term loan at this point due to the prevailing economic uncertainty. On the bright side, property prices may get lower as many developers or homeowners might be getting desperate to sell off quickly. Additionally, home loan rates are nearing their record lows following the RBI’s decision to cut the repo rate on multiple occasions in the recent past which will lead to lower EMIs for some time. In such a situation, you first need to take stock of your finances and your requirements and see whether you can make certain changes in your plan. For example, you may decide to delay your plans by a few more months to get better deals on properties. You may also consider going for a smaller, hence, cheaper, property to reduce your overall loan burden and out-of-pocket expenses. By doing so, you may also be able to avail of the upfront interest subsidy on your loan through the Pradhan Mantri Awas Yojana scheme, get additional tax deduction benefit under section 80EEA of the I-T Act (if your property is valued less than Rs. 45 lakh), and save more in stamp duty and registration charges.
If that isn’t feasible, you can also consider buying a house on the city outskirts instead of prime locations. Such properties could be cheaper and you won’t even have to compromise with the size of the house. However, such properties could also have poor connectivity to key establishments like schools, hospitals, metro stations, etc. You’ll have to decide after carefully considering these critical, and rather conflicting, factors.
Investment plans involving FDs
FDs are one of the most favoured investment instruments in our country, especially for risk-averse investors like senior citizens or anybody who uses an FD for his most important financial goals. That’s why the recent decline in FD rates must be bothering countless investors. That being said, FDs are still extremely low-risk tools that could be beneficial in these uncertain times where capital safety has become as important as capital appreciation. So, risk-averse investors could consider investing in multiple FDs through the laddering technique so that they can earn more in interest if the FD rates appreciate in the future. For additional security, they can also limit their FD value to maximum Rs. 5 lakh per bank as that much is insured by the DICGC in case a bank fails. They can also consider including company FDs with high credit ratings (Sovereign, AAA, or similar) in their investment portfolio for higher returns albeit with slightly higher risk. Other investment options include top-rated mutual funds through the SIP mode, Sovereign Gold Bonds, and small savings schemes after carefully considering your returns expectations, risk appetite, and liquidity requirements. When in doubt, consult with a certified investment advisor.
The strain of lower income on your financial plans
The economic fallout of the Covid-19 crisis has resulted in many companies laying-off their staff or asking them to take pay-cuts or go on unpaid leaves. Countless others have also seen their business incomes grossly depleting owing to the prolonged lockdown. Now, this has surely impacted our financial plans in multiple ways. To complicate things further, getting a new job with a higher salary might not be very easy in the current slowdown situation. So, what’s the way out?
The first obvious step would be to update your resume, upload it on relevant job portals, research aggressively on open positions, and re-connect with your contacts who can help you land a job. Also, see if you can utilise the free time to upskill yourself and monetise your existing skills and hobbies. As far as money management is concerned, exercise strict cost-cutting measures to free up more money to be able to meet critical financial commitments like rent, EMIs, utilities, and insurance premiums. If you feel you’re falling short, try digging into your emergency fund or liquidating/pausing a non-essential investment before taking a new loan at this stage. Opting for the moratorium on loan EMIs can also give you some temporary relief; however, ensure you have a plan to repay the accumulated interest during the moratorium soon after it ends by making adequate prepayments.
If the economic slowdown brought about by the Covid-19 crisis has put a roadblock in your car-buying plans, you can look for cheaper alternatives if your finances permit. These could be buying a second-hand vehicle, a new but cheaper vehicle, or even the base model of your chosen car if you had initially planned for a top-end model. You may also decide to reduce your down-payment and take a slightly bigger loan to preserve some cash if doing so is feasible. However, do not forget to shop around for the best car loan interest rates and lower processing fees and prepayment penalties. That said, if you’re going through a cash crunch, it might be wiser to delay your car-buying plans until your finances stabilise.
In conclusion, conserving cash in these uncertain times is the key so that your essential financial commitments are not hindered. You can also take stock of your short and long-term financial goals, and choose to temporarily let go of the investments linked to your lesser important goals to maintain adequate liquidity.
The author is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.