The global pandemic caught most of us unaware and turned our lives topsy turvy. With salary cuts and lay offs surging, Covid-19 has affected the finances of most of us. In a situation like this how do you protect your finances and plan for short and long term goals? Confusion and doubts have surfaced adding to the stress. To help you cope better, we chat up Dipika Jaikishan, co-founder and COO, Basis. Basis is an app-based platform that helps women manage their finances better. “With the world in its current state, financial security is (or should be at least!) on top of all our minds,” she says. She lists some effective tips that you should follow right now.
1. Save before you spend
This may sound like the “mommy” advice that you often get but Dipika says this will help you wiggle out of difficult situations. This simple mantra of spending = what’s left after you save (instead of savings = what’s left after you spend) will help create a positive habit for life! “Start by saving something as basic as one day’s worth of income, and slowly work that up to 20-25% of your monthly income,” advises Deepika.
2. Build a “peace of mind” fund
Life’s emergencies come unannounced. If the pandemic has taught us anything, it’s to be prepared for these unexpected, and even unprecedented situations. While a few things are beyond our control, having a financial cushion during these situations can alleviate a ton of stress. Dipika suggests you keep a “peace of mind” fund in place. So what does this mean? “Understand what your fixed/essential expenses are every month (rent, utilities, food, etc), and multiply that by 6. That amount should be kept somewhere easily accessible - for instance in your savings account. Let’s say you’re spending ₹ 20,000 on fixed monthly expenses. For peace of mind, have at least ₹ 1.2 lakh in your savings account,” she says. This way, in case that emergency comes up—whether it’s a job loss, furlough, salary cut, business taking a hit or a medical issue, you know you have a cushion for at least six months until you figure things out.
3. Start investing in financial goals, including retirement!
As we all know, life goals usually have a financial component attached to them. Starting a business, going on vacations, pursuing a college degree, buying a home and buying a car—are all financial goals. Writing these out and understanding how much you will need for each will help you advises Dipika, as you can then work backwards to see what you’ll need to save and invest to hit those goals. The Basis app has a goal planning tool that will do just this for you. Simply enter the amount of your goal, when you need to hit that goal, and the purpose and the app will tell you how much you’ll need to put aside and invest every month. SIPs (systematic investment plans) are an effective way to make investing a habit on a monthly basis.
And while retirement may seem like eons away, it’s never too early to plan for it. “The incredible thing about starting to save for retirement early in your 20s is that you can benefit from compounding,” adds Dipika.
4. Ensure you are protected by adequate health insurance
By and large, insurance gurus suggest that an adult (above 21) should have at least a cover of ₹10 lakh when you are in your 20s and keep going up as you grow older. “And yes, you need medical insurance even if you are in your 20s. When you are younger, you are in better health, and premiums are cheaper. As we get older and with lifestyle illnesses, these can affect not just our health, but premiums that we pay as well,” says Dipika. So, make sure you are well protected by a solid health insurance plan! Look at the premium payment as protection, not an expense.
5. Build a credit score
We always thought a credit card could get you into spending more but on the contrary it can help you better your finances. Dipika suggests, “get a credit card, and start building your credit score. This can come in handy when you’re applying for loans later in life. Having a good credit score means you’ll be able to get easier access to loans when you need them,” she says.
And finally, make money a priority. Just like physical and mental wellness, we need to focus on financial wellness. "Chalk out just 30 minutes a week to stay on top of your money: savings, expenses, investments, and insurance,” she concludes.