We are now lockdown veterans. We quickly learnt to survive a new situation and most people made the best of it—that is the human spirit, we are determined to live, despite saying otherwise. There are six lessons from the way the pandemic has affected our health, income, wealth and prospects that I want to share. I must admit that in all the years of writing about, planning for and going through rough events, this is something that I never took into my own calculations. So while the big broad rules remain firmly in place, there are finer nuances and learnings. Here are the six things I learnt while still a quarter of the way through this pandemic.
One, it costs very little to live. When the first full cycle credit card bill came, it was a fraction of earlier bills and I am not a spendthrift. But travel and work seem to add to the bills. Petrol costs were down to zero, bills around eating out, clothes and entertainment were all zero. When just the basics are being bought, I found that the month costs very little. Of course, you need to be debt-free for that to happen. Our saving capacity is much higher than we thought. This is especially true for people who had earlier thought that they had no capacity to save. The rising bank FDs tell their own story as more and more people salted away their savings into FDs over the past two months. Once we are out of this, remember that the lockdown mode is there to target a higher saving rate whenever you desire.
Two, emergency funds are mandatory and they need to be in a fully safe place. Depending on your age, stage and situation, you need between six months and two years of living money in a near-liquid form. Younger people can target less, and as you age, keep increasing the amount you need in your emergency fund. Single-income families will need a higher corpus than a family with multiple incomes. Those with jobs that are contractual or work in sectors not known for being employee-friendly, go for a higher amount. Keep at least half the money in an FD in a large scheduled commercial bank—both public and private are good. But they should be large banks that are too big to fail. The rest is in debt funds—but only if you understand these products or have a good planner. Else, the good old FD works.
Three, markets go up and down, don’t be in the market if you can’t stomach the risk. I know people who sold their entire life saving in equity as the market cracked 30% in March. By June, the same market is up 20% and the losses for those who stayed on are partially covered. We don’t know if the stock market will go up or down in the next few months, but unless we are going back to hunting and gathering, the stock markets will be around and long-term investors will do well. Markets go up and down, we don’t need to yo-yo with them. This is a great time to figure out how much risk you can actually take.
Four, asset allocation and diversification are not just words—they have meaning. Those with well-diversified portfolios across equity, debt and gold did not bat an eyelid as pandemonium raged in the markets. The pandemic told us the virtues of having a good allocation and actually staying with it. A rough rule of thumb is to reduce equity as you age, but getting fully out of equity is never a part of diversification. In fact, those with enough elbow room with their asset allocation had a debt portfolio in place and were able to actually buy more equity as markets fell.
Five, write a Will. This is the middle of June 2020 and we are gearing up for a few rough months ahead as the community transfer rages and the number of covid cases go, well, viral. Our healthcare system looks ready to cave in and the lack of medical professionals and facilities is becoming a reality to a section of the population who has thought that it can buy its way out of any situation. The arrogance of being a rich person in a poor country is suddenly shaky. We don’t know who will emerge unscathed on the other side of this. It is a very good idea to write your Will, especially if you have minor kids.
And last, invest in your health. This is not the last health event and a good immune system is as much an asset as a second home in the hills. The work-only equation now needs to change to work, health and next career equation. The workplace will chew you up and spit you out. Invest in your health. It is an asset. Remember that a regular SIP into own health equals better immunity and lower incidence of lifestyle diseases. You are in charge of your own future. This is both a liberating and a frightening thought. You can choose which one it needs to be.
Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation