6 Financial Mistakes Coronavirus uncovered
We never think bad things can happen to us.
“There is a possibility of bad things happening, but I don’t think it will happen to me.”
We always keep ourselves out of the small probability.
It’s very good to stay positive but to not be prepared for an emergency is not being positive, it’s being stupid and careless.
When you first heard of coronavirus, did you think it would affect you?
Did you ever think you’d witness a nation-wide lockdown?
Did you ever even consider the possibility of losing your income?
No, because we don’t expect these things to happen. And that is why it’s called an Emergency.
So, here are 6 financial mistakes coronavirus uncovered to prepare us for an emergency in the future –
1. Have an Emergency Fund
Ideally, your Emergency Kitty should be 6 times your current monthly expenses.
In calculating your Emergency Fund, your monthly expenses include household expenses, health-care expenses, required entertainment expenses, your EMIs and other indispensable expenses i.e expenses which will be incurred regardless.
2. Have sufficient Insurance
Ensure you have sufficient cover for your life and health.
Insurance cover is calculated based on your individual needs. Therefore, be prudent while buying ready-made schemes.
Do not ever mix insurance and investments.
Insurance is to protect and indemnify a loss.
Investments are to grow your wealth.
3. Live a frugal life
Frugal does not mean cheap.
It means not extravagant.
Wanting an extravagant house or a vacation is okay; these are your dreams and goals.
But unknowingly, we are extravagant to an extent that we waste resources be it money or food.
Going to a fancy restaurant is not needlessly extravagant if that’s the lifestyle you want to lead.
But wasting food just because you can afford to pay for it is.
In this lock-down, we didn’t rush to buy gold & diamonds. We rushed to buy fruits, vegetables & groceries.
Live a luxurious yet simple & humble life.
Don’t waste money or any other resources because we’ll never know when we’ll be faced with a shortage.
4. Assess your Debt Appetite
Loans can be helpful if they are leveraged rightly.
The optimal debt to income rate is about 40% i.e. your EMIs can be upto 40% of your monthly income.
Taking too many loans can be detrimental to your financial health.
Therefore, assess your Debt Appetite before taking any more loans.
Apart from the fear of the virus, people are also worried about paying their EMIs.
Although RBI has announced a moratorium, it only means your credit score will not be affected, you will still be paying interest for this period.
Why live such a stressful life?
5. Do not live paycheck-to-paycheck
“It’s the month-end. My balance is zero. I can’t wait for my salary to be credited!”
Stop living like that.
Create a zero-sum budget i.e. income minus investments minus expenses must be 0.
This way, every rupee will be accounted for and you will have better control of your money.
6. Spend what's left after Saving
If you can live by this one principle of Warren Buffet, 90% of your financial problems will be solved –
Do not save what is left after spending, spend what is left after saving.
Follow the 50:30:20 principle – 20% of your income is first saved, 30% is for your wants, and 50% is for your needs.
(Saving 20% is the bare minimum, if you can save more, do it.)
The current circumstances are very unfortunate. But what would be even more unfortunate is if we don’t learn our lessons from it.
Nothing should go back to normal. Normal wasn’t working.
If you need any guidance, feel free to contact us.
Leave a comment on what else you’d like to know.
Thanks for reading!
