“Be prepared for trouble. Don’t fall apart when trouble strikes.”- Carl Sommer
The second wave of covid-19 has pushed us to adopt completely different workplace norms which are expected to continue at least for a while. Being glued to a lot of negativity has created an overwhelming fear and financial pressure resulting from uncertainty. Crores of people have lost their jobs and furloughed, and incomes have taken a huge hit. The lives of those who haven’t lost their jobs took an unexpected turn, with work-from-home being the new norm or normal. And the result- The financial setup of many people no longer matches their needs and finding a way forward appears close to impossible. However, being prepared and setting a realistic plan can work wonders. So now, let’s take a look at the tips suggested to equip us to survive this tough phase.
Revisit Your Finances and Prioritize Your Goals
The first wave of covid-19 took a huge toll on economic activity. The onset of the second wave and the recent happenings indicate that we are heading for something worse. Under such situations, it might not be uncommon to see many of us going through serious mental pressure when it comes to the question of meeting our monthly expenses. But such situations can be managed better if we are ready to realign our financial goals. Keeping a close watch on our spending habits can be easy if we can pick- up the habit of downloading our bank statements every month. This in turn can help us understand our financial position, create a realistic budget, and review them at regular intervals.
Check If Your Bank Offers Some Respite
Under any emergency, our source of the first resort shall mostly be our near and dear ones. Even though they serve as the easiest and immediate source of support we can rely on; there are chances that they might also have some financial constraints, especially after the onset of covid-19. Under such circumstances, it is considered best to approach banking institutions and request some support or leniency in terms of loan repayment to tide over the tough phase. It is always a good idea to check if your bank has loan pauses or freezes for offering temporary relief. Make sure you have a plan for catching up on missed payments before you request such pauses or freezes. A pause on the loan will not prevent the interest from accruing on the outstanding amount. The onset of the covid-19 hit the markets badly, creating panic amongst the investors. This was followed by withdrawal of investments, halting SIPs, etc., fearing further collapse. But investors never realize that the key to deal with such situations is to stay patient. Those who do not require money immediately or are fortunate to have their jobs can consider investing in different equity funds.
Start an Emergency Fund
A pool of money that can be easily liquidated is essential in times of crisis like that of covid. It is always a good idea to spare a portion of your income for meeting contingencies. An important point to be kept in mind is that the emergency fund should be sufficient to cover our expenses for at least a year.
While this is the case with individuals, organizations should also be equally prepared to meet different scenarios that may arise as a result of the ongoing pandemic.
Plan for Different Scenarios
Each organization might be going through different/difficult scenarios, but at least some of us can choose to have a positive attitude because we are involved in the provision of essential services. But what if the demand for these services drastically goes down? Imagine going into a sudden lockdown, like the one we have now? Scenario planning is the best thing to do when faced with such situations. Let us now take a look at the various scenarios, one can come across.
Scenario 1: Survival & Mitigation
This scenario arises when businesses might not be earning sufficient profits to reach breakeven. Under such circumstances, businesses that expect to remain dormant or with a low level of activities can consider the following solutions:
i. Reduce business activity for services that are unlikely to break even during the next six months
ii. Evaluate your investments and financing options
iii. Renegotiate fixed costs
Scenario 2: Normal, but reduced activity
This scenario is applicable for companies operating somewhere between 50-70% of the normal capacity. In addition to rigorously tracking your cash flow, this group of companies might have to consider lowering expenses. Solutions suggested for such strategies include:
• Maximizing profit margins
• Watching out for credit risk
• Ensuring that your supply channels are not compromised
• Maintaining your credit standing
Scenario 3: Business as usual with growth potential
Those in this position can:
• Continue building cash and keep a close watch on expenses
• Start thinking about making investments you may not have been able to make previously
• Keep an eye out for opportunities that can help you gain new markets/ add to your capacity.
Be Prudent When It Comes To Loans
In times like the covid era, when things are highly uncertain, it is always recommended to review your financial liabilities and reduce your dependence on those. Though some categories of loans like educational/ housing loans may be inevitable, it is important to ensure availing of loans doesn’t become a habit.
Keeping in mind certain points like those mentioned above can equip us to tide over the disastrous impact of the second wave and enable lead a financially safe and secure life.
“By failing to prepare, you are preparing to fail.”
- Benjamin Franklin
Idea & Concept : Suvin David, Research Analyst Cum Faculty Hedge School of Applied Economics
Content Development: Aswathi Satish, Niyog Consultancy Services Pvt. Ltd.