How To Manage Your Finances Amidst The COVID-19 Crisis?

How To Manage Your Finances Amidst The COVID-19 Crisis?

The coronavirus outbreak and its ensuing economic crisis have triggered panic across the economic spectrum. With a total stoppage on economic activities, rising unemployment rate, and market indices witnessing record low, the Black Swan event has impacted all aspects of the ecosystem – from industry, businesses, to investors. Amidst such situations, managing your finances becomes all the more prudent to tide over economic downturns. The COVID-19 crisis calls for well-thought decisions that help you boost your finances and tide the situation unharmed. In light of this, here are the 6 ways to manage your finances amidst COVID-19 outbreak. 

Maintain Cash In FDs

During economic downturns, investing in asset classes may not be an ideal choice for investors. Instead, maintaining cash in bank FDs is considered as a safer option. As a precautionary measure, you can split the resource into 2-3 banks. In case one of your banks undergoes a moratorium, you could access cash from your other accounts. Additionally, investors can also think of investing in arbitrage funds which are low on risk and perform better during volatile market conditions. Since arbitrage funds have lower taxation than debt funds, they are taxed at income tax bracket. 

Analyse Before Liquidating Assets

Amidst choppy market conditions, it is prudent to liquidate your options thoughtfully. Generally, investments should be settled once the reserve has achieved its financial goal -whether long-term or short-term. 

Hence, analyse your portfolio before liquidating any investment. Start with the most liquid or disposable assets. 

Diversify Your Portfolio

An ideal investment portfolio will have the right mix of asset classes per the investor’s income, age, goals, and risk appetite. During economic fallouts, investing in just one asset class can prove to be risky as it can create issues with returns and liquidity. Hence, investing in alternative asset classes is considered a great diversifier as it reacts differently to market downturns. Therefore, having the right mix of assets is deemed to be essential as it helps attain the financial goals, manage liquidity for crises, and obtain growth for long-term goals such as retirement.

Be Vigilant Of Your Debts

It is always crucial to be on top of your debts, especially during an economic crisis like this. Do not delay on EMIs and credit card payments even during an economic fallout. Credit cards carry high-interest rates on pending payments and impact your credit score. Hence, it is crucial to continue to pay your debts and not allow them to accumulate to avoid late penalties.  

Evaluate Your Options Before Investing

Every investor has long-term investment plans that need monthly, quarterly, or yearly contributions. Therefore, it is vital to evaluate the portfolio, as, during market volatility, many assets take a beating. 

Analyse if your investment portfolio is weathered to market downturns -does it provide liquidity, good returns for long-term growth, and continue to be a good option. If not, align your portfolio accordingly. 

Avoid panic selling

The pandemic outbreak and the ensuing market downturn has created panic among investors. As portfolios plunge, there is a strong push to sell off stocks and minimise loss. However, this may backfire. Remember, markets do revive, hence, try to hold on to your investment. 

The Bottomline

The COVID-19 crisis is having a significant financial impact across the world. However, making a well-informed decision will safeguard your finances during such economic conditions.