Financial planning: Six tips to help you face any financial crisis

Countless people are confronting new financial realities a year after the first of the Covid-19 lockdown announcements. The past year may not have been equally difficult for all of us, but it has surely forced each one of us to rethink our financial priorities. With a resurgence of cases in many regions and vaccinations still in the early phases, the Covid-19 pandemic is far from over.

The key is to figure out how quickly and effectively we can adapt to the new financial realities without lowering our guard. Here are a few useful pointers in this regard:

Contingency savings

Widespread job losses, pay-cuts and reduction in income have unfortunately defined the past 12 months and many have not yet been able to bounce back from the financial shocks of the pandemic. However, managing day-to-day expenses despite major cash flow issues has been relatively easier for those who had an adequate emergency fund.

As such, building a contingency fund that can sustain all expenses (including necessities and debt obligations) for at least 6-9 months should be everyone’s top priority. If you had utilised your emergency savings last year and your income channels are now back on track, it’s time to focus on replenishing your fund at the earliest.

Insurance protection

The pandemic has exposed our vulnerabilities like nothing before and we must take steps to ensure our finances (and that of our dependent family members) are not destroyed if something untoward suddenly happens to us. So, having adequate life and health insurance protection in place should also be one of our biggest priorities.

Management of loans

Many struggled to repay their loans during the past year. The RBI announced several measures to relax borrowers’ debt-related stress, but that hasn’t altered the fact that the loans still need to be repaid at a later stage with additional interest in many cases. The pandemic has made us realise that loans need to be managed in a disciplined manner to make them the great tools that enable the fulfilment of our life goals.

Take steps like maintaining an adequate emergency fund for debt repayment even when income channels get clogged, minimising unnecessary loans and avoiding borrowing more than your repayment capacity. Consolidate high-interest loans or move to a cheaper loan facility after due diligence, avoid reckless usage of credit cards and ensure your credit score is always above 750-800 by timely debt repayments to get the best loan deals in the future.

Readjust your financial goals

The lockdown-induced cash flow issues forced many to live on squeezed finances that impacted their savings and investments, which they had made for achieving their financial goals. After a year, it’s time to assess what you have lost and retained. Check your remaining savings and investments, estimate your current savings rate and look for ways to boost your savings by cutting non-essential expenses. You should also figure out which are the financial goals you’ll be able to achieve now and consider downsizing some of your low-priority goals to meet the crucial ones.

Rebalance your portfolio

Your investment portfolio structure may not be the same now as it was before the lockdown. Your risk tolerance may have also changed significantly. As such, you should now check whether your investment portfolio is in line with the new realities and see if it’s excessively skewed towards a particular asset class. If so, you can consider optimally diversifying your investments to achieve the desired returns. Portfolio rebalancing can help you in achieving your updated financial goals as per your current financial capacity.

Stay invested

Many investment products had passed through an unprecedented volatile market situation. However, the situation appears to be better a year later. Many investors who had stayed patient and continued to invest are now reaping rich dividends, whereas many others who exited their investments in panic are now regretting their decision. The new reality is that investors should focus on the long-term and aim to continue making regular investments in line with their goals and risk appetite to earn good returns.