The poor have been most affected. Many don’t have jobs. They have not returned from the home towns they painfully walked back to last year. Nor can they work from home. Each of us can identify at least one other family that we can support. Until they can begin to earn incomes again. The need is dire and urgent.
The large swath of middle income earners have had covid hurting their financial goals severely. Children e admitted to expensive universities and courses, are now studying from home. Those that need to go to college, haven’t taken their exams and do not know how the admission process will work. Parents who have saved for higher education find that corpus hit by the falling markets. And they are not sure about taking an educational loan. Many students who have graduated in the covid year don’t have internships or jobs. It is a break year all around for the young students and graduates. Anxious, but there isn’t any option but to hang on.
Those who are in their 50s worry seriously about their retirement. It looks like they may have to work longer to secure their retirement. But how does one find a new job? How does one compensate for the possibility that one may lose the job early? What seemed like the peak earning period has turned into the risky earning period as most worry about keeping their jobs.
These are times when assets are being liquidated; savings are coming under stress; and incomes are protected as fiercely as possible. Many are aware that they have to find newer jobs, learn newer skills and perhaps pursue a different role altogether. But how does one forecast for normality? How does one cope and what could one do?
First, subject your finances to a stress test. If you lost your job and if your income stopped coming in from the next month, how long will your finances last? What would you liquidate, how much will your raise, and how long will it last? If you have staying power for three years, you have nothing to worry about. If you can last 18 months, you are still in the black. Anything less than that, you have to make plans for how to find the income. Work out a plan B anyway.
Second, subject your expenses to an audit. These are not times for online indulgences; nor is it prudent to gloat about a higher saving rate. There is an alternate use, outside your household, for the money you can save by not spending needlessly. Stick to mandatory expenses and reduce discretionary expenses. Cut back on the urge to travel already, or to give yourself a break, a gift, a surprise for putting up with so much. The trial period hasn’t ended, so don’t let go yet.
Third, prioritise your assets and identify those that you can do without. That third one bedroom you bought; those heirloom jewellery you never wore; those stocks you failed to sell in ages; those funds you forgot about; those deposits you did not close; and that PPF account you let go dormant. Gather them all and liquidate. Liquidity is more important than assets that are not being used. Tighten your asset holdings to only those that are performing; only those that matter; and those you would actually use.
Fourth, review your financial goals. Each one of them. Many of us have disproportionately large expenses planned for the children. Their higher education; their marriage; their business proposition; their inheritance; their toys, gadgets, clothes and accessories. Rework these to realistic estimates. Many young adults are now marrying without fanfare in their backyards and at the registrar’s office and are quite fine with it. Allocate funds for the household’s stability through this crisis. All other financial goals can wait.
Fifth, extend your work life. You can’t retire early as you planned. Nor can you retire as scheduled. Two lost years of work and opportunity, and three more years of uncertainty just added five more years to your work life. Find what you are good at; make sure you have something valuable to offer; and push for an opportunity to monetise that and earn an income. Shelve those entrepreneurial plans, unless your business idea is so aligned to today’s needs that it will generate adequate revenues. These are not times for risk taking.
Sixth, guard your investments. Do not assume that you have enough or that you are at just the right time for some momentum trading. Many households have met ruin when the corpus was recklessly traded to make quick gains. These are not times for gambling with your wealth. There is no other way to look at uninformed investors trading on tips. Don’t get desperate about making money. There is a time to move and a time to stay. We are not yet in a position to move.
Seventh, do not extend your leverage. If you are already servicing your home loan and car loan, that is enough EMI already. This is not the time to take new loans, overspend the credit card or borrow from friends and relatives. Hold back and see how you can live within your means and postpone what is not important. Be responsible about your financial decisions, always.
Eighth, allocate what you have into three heads: what your household needs to survive, over the next three years; what you have as buffer for the next three years; what you have as surplus after the other two heads. Give, donate, support, lend, and enable others to benefit from your surplus. These are times when empathy is the only quality that will save humanity. Recognise your privilege and remain confident that you will build it all back in time, for you aren’t broken.
Remain conservative. It won’t hurt. Remain cautious. It is alright. Remain human. It matters the most.
(The author is Chairperson, CIEL)