Financial security will have a new meaning in the post-COVID19 world. The idea you had about future healthcare needs a new look. The retirement plan you had before the pandemic may need a makeover. The marriage budget you worked on 18 months ago needs an overhaul. Your child’s education will see changes in ways unheard of before. It is tough to come up with a plan as uncertainty rules over your long-term strategic financial goals.
Over the past 18 months, your finances may have witnessed an upheaval. If you are still lucky to have a steady income, you may want to rework your plans. There is a need for you to prepare against potential financial shocks that could come in multiple forms. Your family’s healthcare has to be your top priority.
Striking a balance between your income, investments, expenditure will help you take on any future health situation.
In India, we are grossly underinvested in healthcare. Individually, as well as at the government level. One in three Indians has some health cover. However, nearly two-thirds of the population has to use up its own money to pay for any health calamity, according to the latest Economic Survey for 2020-21. At the government level, the situation is even worse. Healthcare spending in India is just under 1 per cent of gross domestic product or GDP. According to the World Bank estimates, in China, it is 3 per cent, and in the US 8.5 per cent. If India wishes to be a great power in the future, that has to rise.
However, this is easier said than done. The shortage of hospital beds, nurses and doctors would make it harder to take healthcare services to every citizen even if it enhances expenditure. It would take at least 15 years for India to provide adequate healthcare to everyone if we started today. That makes you vulnerable. Your savings and investments have to be spread across asset classes. There are three critical aspects that you need to know before you reset your financial planning.
The Importance of emergency funds
No other crisis can explain the need to have an emergency fund. Before COVID-19, financial planners recommended a 6-12 month salary or monthly income as an emergency fund. Many are now recommending much more than that. It was hard enough to achieve the previous target for most of you. As expenses mount, savings and investing across the board would see pressure. The clear message from the crisis is that you must have an emergency fund. That is your money in fixed deposits or savings account or a liquid fund that is available for you instantly.
More household income
That may sound a bit perverse. But merely cutting expenditure may not be enough for your financial security. You may have to figure out a way to generate additional income. If your work allows you to scale up, you need to do everything possible to enhance your income. If you have an educated spouse at home, you may want to work together to boost income. There is a discussion in many family groups about nuclear families getting back together to rationalise costs and revenue. If you get along with your family, that is an option to cut expenditure and boost income over the next few years. If you have been investing for a long time, you must make them work to generate additional annual revenue to help with increased expenditure.
Protection against shocks
The importance of insurance needs no more explanation after the pandemic. You have to enhance your life insurance cover and the scope of your medical insurance. Extra protection is required to deal with any future shocks. The priority this year should be to get the entire family vaccinated as soon as it gets available. There is a chance that insurance companies may take that as a condition for giving you COVID-19 cover in the future. It would help if you looked at your annual insurance premium outgo for all policies and spread it out with monthly payments. That way, you may spread out higher insurance costs.
(The author is editor-in-chief at www.moneyminute.in)