The spread of the dangerous Coronavirus (COVID-19) has put human lives in danger. Apart from this, the effects of this pandemic are quite severe. With numerous businesses shutting down and reducing their overheads by furloughing employees, people are losing their primary source of income.
With companies around the world facing huge losses, it would be difficult to secure a new job. Therefore, it can be a reason for concern for such people, as it is the matter of their survival. How much savings do they have and for how long they can make ends meet without a steady income are some questions to worry about. COVID-19 has hampered the financial planning of many people. Let us look at some personal finance issues during this uncertain period.
Personal finance concerns due to the pandemic
Here are five personal finance concerns that you need to take note of.
- Building up an emergency fund
COVID-19 has made many people understand the need to have a contingency fund. The availability of funds especially saved for emergencies can cover necessities like house rent, food, utility bills, and medicines in case of situations like a pay cut or a loss of job. Such funds can prove useful if any member of your family needs to be hospitalized. Availability of emergency funds can help you sustain for at least a few months until you can find a steady source of income. It is advisable to keep aside a minimum of 10 to 15 percent of your salary to build an emergency fund.
- Absence of the right health and life insurance plans
Today, during this turbulent period, having a health insurance policy is the need of the hour. Moreover, a life insurance plan is a long term investment that you need to consider purchasing. You need to have the appropriate health insurance and life insurance policies to protect your savings, meet your life goals, and secure your family’s financial future. Buying a term plan with riders, like critical illness and terminal illness can prove to be a wise decision. Additionally, you may consider a health insurance plan that can cover daycare charges and pre- and post-hospitalization expenses to safeguard your finances during the pandemic.
- Having a good credit score
COVID-19 has taught us that urgencies come unannounced. With emergencies, the need for extra cash can arise, and during dire conditions, you can rely on a financial institution for credit. However, you need to have a good credit score to avail of the credit facility at a better interest rate. Therefore, you need to manage your debts efficiently by paying all your dues on time. Remember that building a good credit score takes time. However, only one lapse in payment can affect your score.
- Considering whether to purchase immovable assets or not
Many people are skeptical about when and where to invest money. Real estate is considered a good investment option in India. Due to this pandemic, there are numerous opportunities to invest in real estate because of the affordable interest rate on home loans and attractive deals on immovable assets. However, is this is the right time to buy a residential property or any other immovable asset? Financial advisors are doubtful about this investment option in India. This is because no one knows how long this pandemic will last and how it will affect the economy. Even the financial connoisseurs cannot foresee the impact of this pandemic on the property prices.
- Maintaining a balance between income to expense ratio
Today, most people have a car loan or home loan, or they are paying Equated Monthly Installments (EMIs) to buy consumer-durable items, like electronics. Therefore, it is essential to manage the income to expense ratio, as you cannot predict what the future holds, especially during this pandemic. What if you lose your job or your business is not doing well! So, do not consider your future earnings while maintaining your income to expense ratio.
Such personal finance concerns are more with people that fall in the low-income group. One of the reasons behind such problems is the limited access to credit facilities. Even if they can get credit facilities, the rate of interest is considerably high. Reserve Bank of India (RBI)-licensed lenders should serve such people with meaningful credit at a convenient interest rate.