The spread of Covid-19 and the lockdowns that have followed have
thrown the economy and government finances into turmoil causing them
financial stress, and people are worried about paying their bills.
The pandemic has cast a long shadow of uncertainty. It is unsure how
long it will take to restore normalcy plus revive the economic
environment. Though COVID-19 will continue to have an adverse impact
globally, a few smart decisions may help common people maintain
Re-assess your budget
Every well-managed household works on a pre-set budget. Usually,
budget changes with changes in household income to ensure that
expenses do not increase. They need to discern
between needs and wants. It is crucial for households to take this
decision for financial stability until the threat subsides.
Take into account the fact that if one opts for the moratorium, the
interest on their loan will continue to accrue, which will lead to
increased EMIs or additional instalments at the end of their loan, or
both. This is why, only those people who have significant cash flow
constraints currently, should opt for a moratorium.
Avoid delay in credit card payments
Do not delay your credit card payments even during an economic full
stop. Credit cards charge a high rate of interest on pending payments
and directly affect your credit score. Hence, if there is a liquidity
crisis, at least the minimum payments must be paid to avoid
exacerbated bills later along with bad credit score.
Store but do not be extravagant
The lockdowns have made stocking up critical. However, hoarding and
overspending on groceries is not a good idea. While it is wise to
avoid supermarkets and crowded places, just buying enough supplies
for a month should suffice. Governments across geographies are
ensuring that there is no restriction on the flow of critical items
and hence their availability will not be an issue.
Avoid panic selling
The freefall in global stock markets is making investors uneasy. As
portfolios tumble, there is a strong impulse to sell stocks and
minimise losses, but this is the worst possible course of action. By
selling equities at a lower price, paper losses become real. The
value of most stocks will stabilise when normalcy returns. Hence,
they should hold out and wait for the volatility to end.
Save for rainy day
It is always advisable to have savings and an emergency fund. This
fund can provide a cushion in trying times such as these. Households
should immediately start creating such funds once the epidemic is
over so that they are ready for any hardships in the future.
Following these few simple tips can help households weather the
current storm and emerge from it unharmed. More importantly, when
things get back to normal, they will find themselves in a stronger
position with no extra liabilities. Furthermore, some of this advice
can be helpful even in stable times. It is important to prioritise
your expenses, focus on the ones which are an absolute must, and
postpone any discretionary ones until the lockdown is revoked.