Money management: What has the lockdown taught me?

When the lockdown was first announced, many decided to stop their SIP investments. This was a mistake on their part as investments made during lockdown are now giving good returns.

While India has now eased the COVID-19 restrictions in many parts of the country, most of us have been staying indoors since mid-March. The three-month long lockdown has brought major changes in our lives, including how we spend our money. With limited access to the outside world (barring grocery shopping), the pandemic has given us an opportunity to re-evaluate our spending habits, make more investments, and save a significant amount of money that would normally be spent on eating out, office commutes, going to movies or taking weekend trips.

This unusual time has reinforced some valuable money lessons in me that I will carry forward even after the pandemic subsides.

The importance of having an emergency corpus

With companies scrambling to reduce their operational costs, the concept of job security is slowly diminishing. Thousands of employees have been laid off, salary cuts have been enforced, and many have been sent on unpaid leaves. In an uncertain economic situation like this, having an emergency fund is critical. Take 10-15% of your income and put it in an FD/liquid fund for emergencies. The emergency fund should be enough to cover at least 6 months of your living expenses, which include rent, utility bills, groceries, and ongoing EMIs (if any). This will act as a financial safety cushion if you find yourself in an unfortunate situation. And remember, the best time to prepare for war is during peace.

Cutting down discretionary expenses is not difficult

In the pre-pandemic period, I used to spend a major chunk of my salary towards shopping, outings, and ordering food. However, the lockdown has proved that our basic living expenses are not high. Since I have been spending only on essentials, I have also realized that cutting down discretionary expenses is not a difficult task. You just have to shift your focus from ‘what you want’ to ‘what you need’. Once you adopt this practice, your discretionary expenses will automatically go down.

Online payments are seamless

Be it for investments or EMIs, online payments are seamless and eliminate the need for physically visiting the bank or the office. All you need is your smartphone and a stable internet connection to make the payments instantaneously. Moving all your payments online will not only save you time and effort, but will also ensure that you do not skip any payments. Moreover, making payments online often have other benefits such as special discounts and offers.

Consistency is the key in mutual fund investments

When the lockdown was first announced, many decided to stop their SIP investments. This was a mistake on their part as investments made during lockdown are now giving good returns. In times of crises like this, you should continue with your SIPs irrespective of the market forces. Stock markets are volatile in nature and you must be willing to bear the risk to get rewards. Instead of panic selling your stocks, you can bring down the risk factor through portfolio diversification.

Keeping track of your financial goals helps avoid unnecessary stress

Many people invest for the sake of chasing high returns. This eventually leads to stress and panic during times like these when their investments go in the red. A better way to invest is to invest according to your financial goals by dividing them into short term and long term goals. Short-term goals should not contain risky investments meant for the long term like stocks or equity Mutual Funds. This will keep them insulated from downturns and you will not be dependent on the markets recovering in a short time frame. And while long-term goals will get affected with the downturns, there will be enough time on your hands to wait for the markets to recover before you need that money. This way you can avoid the unnecessary stress that comes from investing just to make high returns.

(By Ankur Choudhary, Co-Founder and CIO, Goalwise.com)