The past year has brought untold financial stress and misery for some people. Small vendors, unorganized labour force and the urban poor have been the main victims. Job losses, mounting health bills, business closure for long periods, unpaid credit card/loan liabilities – these are some of the common problems many among us have been through.
On the contrary, the same time period has brought unexpected high fortunes for some others. Technology start-ups, remote learning ventures, online home businesses, pharma and medical sector companies have seen a major upside. And the rest are faring somewhere in between.
Whatever be the financial ups and downs faced, it is time to press the reset button and take a fresh look at our financial situation, now that things are looking up. Lockdowns are easing across states, the second wave is receding and life is limping back to normal once again.
Depending on our present financial position, immediate future needs and long term goals, there are several steps to be taken to secure our finances. We have put together a few common pointers to get you started.
Continue to exercise caution for a while. After being cooped up at home for months together, the natural urge is to break free and splurge. We would be tempted to make elaborate travel plans or release pent up demand for purchases kept on hold during the lockdown. This is the universal trend we have seen in history too – economies were booming after recovering from large-scale tragedies such as Spanish Flu (1920s) or World War II (1950s).
However, it is important to take cautious steps in this direction. Because the risk of another wave of the pandemic is still looming large ahead of us. So we cannot blindly assume the rest of the year will be business as usual.
Let us first evaluate our present situation thoroughly. Prioritize mandatory expenses, travels, purchases over the nice-to-have ones.
Audit your present financial position. A lot of us have incurred unplanned medical expenses or eroded our savings due to temporary job loss. So we must do an accurate audit of our finance position as it stands today. In fact, this is a financial best practice one must follow at all times. Financial assessment must be a regular activity, preferably every quarter, mandatory at least once a year. Just a simple excel record or a diary entry will do. The audit must cover the following aspects:
- Assets – Savings, gold, property, equity holdings
- Liabilities – Outstanding loans, credit card bills, bank overdrafts
- Regular Income – Salary, interest income, property rentals, dividends
- Expenses – Household, medical, education, insurance, taxes, discretionary, others
Ensure cash flow for retirals, taxes and premiums. Covid has taught a lesson or two about safeguarding our basic interests, both for the present and the future. Some mandatory / regulatory expenses have to be borne irrespective of the current financial position we are in. These expenses form a safety net for us in future and ensure long term financial security. This is quite apart from the expenses of a personal nature such as food, travel, health or education. Some of these expenses are as follows:
- Health / Life insurance premiums, don’t miss them at any cost
- Taxes – Property tax, Personal Income Tax, GST for businesses, etc
- Retirals, PF/pension contributions, investments for long term financial security
Clear debts before incurring fresh expenses. A new job or new orders for business means new incomes would start flowing in, when normalcy is restored. If we have piled up debt in the form of credit card bills, bank overdrafts or personal loans, we must try and clear them on priority basis. Travel plans, new product purchases better be deferred until the old liabilities are cleared. There is no point throwing further money into old debts in the form of exorbitant late fee penalties at high rates of interest.
Loans have a sizable EMI liability falling upon the borrower. When he misses even one payment instalment, the rate of interest on his borrowing increases drastically. Credit card users commonly misunderstand the “Minimum Amount Due” in their monthly bills. They simply pay this minimum amount and let things slide. But just within a few months, they will see their net liability increase manifold. That is because the remaining amount due is now liable for exorbitant rates of interest. Most credit cards charge between 3-4% per month, which is a whopping 40% annual interest! Bank overdrafts are typically in the range of 9-12%.
It’s a good time to switch to Chit Funds – an attractive saving cum borrowing instrument
A financial instrument which can serve as a viable alternative for many of your financial needs is chit funds. Chit funds may sound like a completely different kind of financial instrument. But in many ways, chit funds can help you in getting rid of the credit card/loan debt trap. How, you may ask. A quick summary below:
- Chit funds by design are a dual purpose financial instrument. They are an easy mode of saving as well as borrowing.
- For known expenses that you are likely to incur in the short to medium term, you can plough in your excess revenue into an appropriate chit fund scheme for a tenure of 2-3 years. So when it’s time for the actual expense, your money is ready to use! No debt, no interest.
- If in the mean-time, you are faced with a financial emergency, the chit fund gives you a quick liquidity option to tide over the crisis.
- In a chit fund scheme, even if you pull out the entire amount early, your monthly payments cover both the principal and interest. Thus leaving you debt free at the end of the tenure.
Interested? Want more information? Get in touch with us. We will be glad to help.
Shanthala Chits has been in the business of chit funds for over 2 decades now. We are a Government approved chit fund company with a 25 year successful track record and thousands of satisfied customers. Shanthala Chits is registered under the Chit Fund Act of 1982, Government of Karnataka. We are one of the most popular chit fund houses based out of Bengaluru, known for our customer satisfaction and secure investments. Get in touch with us and start with an investment scheme. We will be glad to help you out with the right scheme that matches your needs.
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