Reset, refresh, rejuvenate: How approaches to financial planning need to change post-pandemic

For Maanvi Chhabra, a finance skilled, the Corona virus catastrophe couldn’t have come at a worse time. Having landed a comfortable job at a top-tier know-how group early this yr, she was assured that she might comfortably repay her money owed within the subsequent two years with out compromising on her different objectives. Building an emergency fund for wet days was not a precedence; the good-looking pay ensured ideas of unexpected conditions didn’t cross her thoughts. But earlier than she might begin paying her EMIs, Chhabra’s employer was compelled to close store owing to mounting losses as a result of lockdown.

The Covid-19 pandemic introduced the world economic system to a grinding halt within the first half of this yr. In the previous few months, governments the world over have been compelled to seal borders, stop commerce and manufacturing and confine residents inside their properties to cease the loss of life toll from surging. Although lockdown restrictions have been eased in most nations and financial actions are being resuscitated, it will likely be some time earlier than the economic system may be nursed again to well being. In truth, International Monetary Fund Managing Director Kristalina Georgieva and Chief Economist Gita Gopinath warned in September {that a} full restoration of the worldwide economic system remained unlikely till a vaccine was found.

The financial fallout has brought on a seismic shift within the perspective in the direction of cash. Job losses, wage cuts, and shutdown in companies have upended lives for a lot of, the impacts of which have been devastating for these whose funds have been already in fragile form. Coupled with revenue uncertainties, the concern of contracting the an infection and the considered being burdened underneath a mountain of medical bills has spurred folks to re-evaluate their monetary objectives.

Realigning objectives

Talking concerning the affect of the pandemic on monetary objectives, Arjun Chhabra, a chartered accountant, says, “I don’t think my long-term goals will be impacted. The silver lining that has emerged in this crisis – there is more money in hand due to the fall in recreational expenses and I think it will be easy for me to meet my short-term goals. I have started focusing more on saving than investing because the markets are so volatile. New investments, especially high-risk ones remain out of the question. My priority in the short-term is to maintain liquidity by having enough savings.”

Nitin Rao, the CEO of InCred Wealth asserts that the present tremors within the economic system have necessitated a shift within the strategy to sustaining monetary well-being. He says, “The markets have never had to face an unforeseen event of this nature in the past. Earlier investment cycles were usually predictable (every 3 to 4 years) and aligned with economic activity but now what with jobs and earnings at risk, short-term goals and priorities have to be aligned with those risks. Government interventions through fiscal and monetary stimulus have also in turn changed the returns expectations for all. For instance, debt instruments that were giving ~7% earlier are now giving around 3%.

Vikas Gupta, CEO at Omniscience Capital opined that the redrafting of goals primarily depends on the extent to which one’s income stream has been disrupted by the pandemic. He says, “Those whose income streams have not been disrupted, need not worry about changing their goals. Rather for them it is an opportunity because of the volatility in the stock markets and undervaluing of asset classes caused by the economic downturn. Those who have seen a significant drop in their earnings will first have to think of regenerating their income. Depending on whether they had a contingency fund or if they have had to tap into their existing investments to keep themselves afloat, they will have to re-evaluate their goals. The biggest takeaway for both these groups are that everyone should have a contingency fund that can help them pay for at least six months of basic living expenses.”

Mapping methods with the altering scenario

Given that the economic system will take some time to regain its pre-pandemic well being, step one in the direction of resetting your funds must be sustaining a good leash in your bills. Gupta explains, “Irrespective of whether your income has remained unchanged, has been partially impacted or completely dwindled, you have to force yourself to go on a tight budget and keep expenses at minimum. That increases your search opportunity for new income streams for longer periods of time. If you need to tap into your investments, fixed income instruments are preferable as this minimizes the risk you would be exposed to should you play around with your equity investments.”

According to Rao, the planning for the following one yr will hinge on liquidity necessities. He says, “It is important to understand your perceived cash flows to be ready for unforeseen expenses like medical costs, insurance coverage, job loss, pay cuts. Assets like gold have to be an essential part of the portfolio at least for 1 year to hedge against any uncertainties. Since valuations in the stock markets are still high, money can also be moved to debt for the short term needs. Lastly, exit strategies are critical hereon and need to be defined for all investments. Traditionally exits were aligned to markets or economy but they should now also be linked to life events, life cycle or whenever abnormal profits are made or every 3 to 5 years irrespective of the market cycle.”

(This article is a part of the HT Friday Finance collection revealed in affiliation with Aditya Birla Sun Life AMC)