Managing wealth during Coronavirus

As the country goes into lockdown and an uncertain economic future looms, we can be sure that the next few months won’t be kind to our wealth. As we begin a new financial year, here are a few lessons on Wealth Management that Covid-19 has reminded us so far.

Emergency fund is non-negotiable

Many of those around us, particularly those in their early 20s, often wonder if an emergency fund equal to 12 months of expenses is an overkill. For those folks and others who think how they could be jobless for months due to the economy, they only need to look at sectors like aviation, travel, hospitality, event management, and others. As the country goes into lockdown, some major airlines have already asked employees to take a pay cut or go on leave without pay even as predictions of bankruptcy looms on others.

During this economic hibernation, the worst affected will be the poor who couldn't afford an emergency fund and those who didn't find it important enough.

Insurance Sahi Hai

As with many things in life, it takes a lifetime to build wealth and barely anything to lose it. A single event, whether external or personal, is enough to wipe out one's savings.

While the importance of medical insurance is obvious, its complexity isn't. With inclusions, exclusions, varying premiums, and a long list of clauses, even the simplest plan needs time to understand. Most importantly, even a small error in reading the fine print can result in years of premium going waste when you need it the most. 

However, this shouldn't be a reason to avoid or delay getting insurance. The next few weeks will probably be a good reminder of why insurance should be the first in your wealth management checklist. 

Wealth lies in your Health

As our elders have often told us during dinner-time, eating right and taking care of the body is our primary need. The only thing more important than wealth in deciding the quality of life is the health of your body. At the very least, a healthy body will save you money in premium paid and sick leave you didn't need. Most of all, like wealth, one just needs to look at a healthy 70-year-old to see the compounding effect of a healthy lifestyle.
 

Don't put all your eggs in one Savings A/c

In the wake of depositors being restricted from withdrawing their money, be it PMC bank or Yes Bank, this needs to be repeated. There is no major benefit in keeping most of your wealth in a savings account, regardless of the bank you choose. The main reason is that your wealth shouldn't be exposed to any risk that comes from a stolen wallet or a compromised debit card.

Besides, from liquid funds to FDs, there are many other products that offer better safety, higher returns, and almost the same level of liquidity as savings accounts. In short, there is no reason to let too much money lying idle in a savings account, even during the time of Coronavirus.

The falling stock market

This period will be a test of your asset allocation. Sensex has seen its biggest fall in a single day while the numbers for Nifty50 aren't looking good either. In a few weeks, people have lost wealth built over the last few years.

If you were studying the Sensex numbers or the irrational euphoria late last year, you would know that this was an overdue correction triggered by a pandemic. Even if you didn’t, the rise and fall of markets is an essential feature of our economy. 

More than ever, correct asset allocation is your best bet in times like these as it would have minimized your losses and insulated your life goals from the moods of the market. 

Track your purchases

If the start of a new calendar year is a good time for resolutions, the start of a new financial year is the best time to start tracking your expenses. The lockdown and ongoing economic hibernation is pushing people to reduce their consumption to the bare minimum. Those who track their expenses will be surprised by how little they actually need to maintain an acceptable lifestyle.

As an experiment, try to record all your expenses until the month-end and compare it with the last month. You will be surprised by what the numbers say. After all, what you measure is what you manage. 

The article was first published in Economic Times on March 24.