Bolster your finances before third Covid-19 wave with an emergency corpus

Buying a personal health cover and reducing loan burden will put you in better shape to handle a crisis

The latest Coronavirus variant, Omicron, has once again introduced uncertainty. Countries in southern parts of Africa have been impacted severely. Japan has already banned the entry of foreign nationals while New York city has declared an emergency. While the likely intensity of the third wave is still a matter of debate, wisdom lies in being financially prepared for it.

Deepali Sen, founder partner, Srujan Financial Advisers says, “Those who lost their jobs or got laid-off have learnt the lesson well about the need to be financially prepared. But many have not, and they continue to do only the very basics on this count.”

Replenish your emergency corpus

If the economy takes another blow, lay-offs could start once again. So, having an emergency corpus to tide over unforeseen situations is a must.

Ideally, you should keep aside at least six months of monthly expenses as an emergency fund. Monthly expenses should include household expenses, EMIs, insurance premiums, and children’s school fee. Melvyn Joseph, managing partner, Finvin Financial Planners says, “If you don't have an emergency fund in place, pull some money out of your investments and park it in the emergency fund. Once you have created this fund, continue with your other investments.” Park this emergency corpus in a liquid fund or a savings bank account.

In addition, you must also have hard cash at home. When a health crisis intensifies, many hospitals demand a part of the bill in cash. Keep a minimum of one month’s expense in cash.

Personal health cover is a must

Many people learned the need to have their own personal health insurance cover, over and above the one provided by their employers, during the last two waves. When you lose your job, you also lose the benefit of the health insurance provided by the employer. According to Joseph, “How much cover you buy should depend on the city you live in. For a family that lives in Mumbai a Rs10 lakh cover will not suffice, whereas that amount will be adequate for one living in Kerala.”

Most planners suggest that families living in metropolitan cities should buy a floater cover of minimum Rs15-20 lakh. Sen says, “Individuals living in cities can manage with a Rs5-7 lakh cover.”

Those who are not able to get a comprehensive health insurance cover must buy an alternative policy. M. Barve, founder, MB Wealth Financial Solutions says, “Buy Corona Rakshak, a fixed benefit plan that pays out the entire sum insured when one falls prey to Covid-19.”

Ensure you have adequate life insurance also so that your family is protected financially in case of an unforeseen eventuality (see box).

Minimise loan burden

In these circumstances, it is advisable to reduce liabilities as much as possible. Sen says, “Try and reduce a few loans to zero or drastically. Commit any extra money you have towards prepayments. Break a few investments or borrow from family members. Too many EMIs are the biggest cause of stress during difficult times.”

Begin with your credit card. Pay off the outstanding amount and stop rolling over. Next, target personal loans. Home loan should come last. Barve says, “Try balance transfer to a lower interest rate. But before you do that, work out the numbers to see that there will be considerable savings. Also be mindful of the prepayment penalty.”

Stay away from speculation

If you invest in the equity markets, avoid panic selling. As far as possible, continue with your SIPs. Those who indulge in speculative activities, like trading in stocks or crypto currencies, should end such activities. As the outlook turns murkier, risky assets witness a downturn. Losses on these bets could magnify your financial troubles.

Finally, while you may not have any control over the other circumstances surrounding the third wave, controlling expenses is in your hands. Knock off a few lifestyle expenses until the trying times end.

 

Buy adequate life cover for your family

• Life insurance is a must, especially for single-income families

• Term insurance purchased online is the best life cover, according to financial advisors

• Those in their late 20s or early 30s should get a term insurance cover equal to 20 times their annual income, while those in their 50s should buy coverage of around 10 times

• Term insurance is not very expensive: The premium for a Rs 1 crore cover for a 35-year-old living in a metro would cost Rs 12,000-19,000