Lockdown Lessons: Smart Tips to make money management easy

June 2020

3 min read

 

India is slowly reopening its economy with the Unlock 1.0. As we take our lives back to normal; it is important to revisit and highlight the lessons we learned about Money Management. The lockdown has had some impact on every individual’s finances. Some investors realized the importance of an emergency fund; whereas for some people it was an opportunity to revisit the financial plan. 

Today, we will share the most important lockdown lessons so that money management becomes easy for you.

Money Management Tip 1 – Digitize your Finances

The most important lesson of this long lockdown is the importance of digitization. As people were forced to stay in their homes, regular expenses like electricity bills, rent, groceries, etc were still going on. Having the online access to the bank would simplify these expenses. Hence, activating your mobile banking and/or net banking should be your first priority.

Now, coming to investments, online investments and tracking have become very easy with apps like Investica. However, if you are not doing it already; consolidating all the investments in one place should be the next important thing that you do. Investments in multiple places are difficult to track and can be a hassle during difficult times like lockdown.

Ensure that your contact details especially the mobile number and email id are updated in every important financial document. This will help in getting timely updates about every financial aspect.

Money Management Tip 2 – Always follow the Asset Allocation strategy

Time and again we have tried to emphasize the importance of Asset Allocation. The dramatic market fall and equally surprising recovery during the months of April and May have made it clear that the following asset allocation strategy will go a long way for your investments.

Asset allocation is simply having multiple asset classes like Indian Equity, Debt, Gold, US equity in the portfolio. The idea is to invest in assets that are not correlated. This way even during extreme volatilities in equity, debt, and gold can provide stability. And as the economy does well, the equity funds will outperform other asset classes.

No one has managed to time the exact entry and exit from these asset classes. Hence, having multiple asset classes reduces the potential downside of the portfolio.

Money Management Tip 3 – Do not take investment-related decisions emotionally.

On 24th Feb 2020, Nifty 50 was at 11,829.40. About a month later, on 23rd March 2020, Nifty 50 was at 7610.25. This is a fall of 55.44% in just a month’s time. While we understand that such a drastic fall leads to panic amongst investors, one thing to keep in mind is that Equity is a long term product. Many investors wanted to redeem the investments and stop SIPs owing to the fall.

Do not let panic or any other emotion drive your investment decision. Clearly earmark every investment with a stipulated time frame. That will help you in taking a long view related to your investments. For example, if your goal is to create a retirement corpus and your retirement is 20 years away. One month’s fall will have practically no impact on your goal.

Make sure that you take a very practical approach while you are making any investment decisions.

Money Management Tip 4 – Move on from traditional investment to market-linked investment

During the lockdown, RBI reduced it’s repo rate and made it 4%. With this drop, returns of all the traditional investments like fixed deposit, recurring deposit came down. In most cases, current rates are not even beating inflation. Going forward, these returns may drop even more. In such cases, sticking to traditional investment vehicles is not a good idea.

You can select a suitable market-linked product based on your requirements. If you do not wish to take the risk associated with equity markets, then you can go with debt funds. Even in equity funds, you can choose from equity categories across the spectrum of low risk to high risk.

Take help from your investment advisor and create an optimal portfolio that fulfills all your requirements.

Money Management Tip 5 – Say NO to complicated financial products

This lockdown and the market fall also led to misselling of complicated financial products which claimed guaranteed risk free returns. Most of these investments are high ticket starting from 25 – 50 Lakhs. These investments also come with a lock-in period ranging between 18 months to 24 months. With longer lock-in periods such products have very high costs associated with them. In most cases, investors are better off without these products.

Here’s a simple rule of thumb to avoid such products. Do not invest in any product that you don’t understand. No matter what is the potential return, if it has a very complicated structure then stay away from them. While shortlisting any fund, you should prioritize liquidity over anything else. The investments you make (except tax saving) should be accessible at all times.

Use these tips and make the money management easy!