NEW DELHI: Pre-pandemic, Manish Misra, 28, used to work with a sales team in an automobile company in Noida, at a salary of Rs 97,000 a month. With a small baby just six months old, and his wife, a teacher in a private school, their combined income was sufficient to set down their goals to build a secure financial future. Or so he thought, until the pandemic hit him.
Just 15 days after the first lockdown, Manish faced a steep salary cut of 20 per cent. So did his wife. Since the schools were closed and more classes were going online, her salary cut was steeper at 30 per cent. That was when the family realised that they could sustain themselves financially.
“I have a pension plan, a health insurance, and we used to invest Rs 2 lakh each year in tax saver mutual funds to meet our financial goals apart from Rs 50,000 each in the Public Provident Fund (PPF). It was working well and we were comfortable, but our combined income is now reduced by about 25 per cent and the cost of living, from grocery bills to other household expenses, has gone up by at least 20 per cent. How manycorners we can cut? Cost of living is going up and the salary is going down,” Manish said.
This is the post-pandemic shock for thousands of salaried class professionals, who have been forced to live with skewed incomes and steep hikes in inflation that has made their finances unsustainable. This has forced many of them to put a squeeze on their spending while also making a large dent in savings and investments. “I have cut my investment in mutual funds by half and my annual PPF contribution to one third. Pension and health insurance premium is continuing, but even these have gone up. I know this is not a wise thing to do, but do we have an option,” notes Manish.
Personal finance experts claim that this is the situation of many salaried professionals. “Sudden loss of income, especially for young salaried professionals, is financially devastating. I do not blame them as there is a limit to which one can cut corners. Many have returned to their home towns and are working from home to save on their rent and transportation costs, to partially compensate for the income loss. But now, with offices opening people are reluctant to be back to offices with reduced incomes and high expenses,” says Rajesh Malhotra, a person finance advisor based in Mumbai.
And there are statistics to buttress the claims.
Take the kitchen budget for instance. Compared to the pre-pandemic period, the cost of cooking oil, a staple kitchen item, has gone up by 50 per cent in just one year; the cost of LPG has gone up from Rs 495 in December 2019, to now Rs 857; dal prices are up by 25 per cent; loose tea prices up by 39 per cent; personal care products by 15-18 per cent; and even the cost of daily bread has risen by 20-25 per cent. Consumers, meanwhile, claim that despite cutting corners, their kitchen and grocery budget is up by 25-30 per cent compared to the pre pandemic period. Not to mention cost of vegetables and items in the food basket.
Coming to consumer durables, even common items like television sets (TV) have seen a double-digit hike in prices. Expenses are steeper for those whose jobs involve travelling, with commuting budgets up by as much as 25 per cent, thanks to all-time high petrol and diesel prices.
“Inflation and salary cuts have pushed back financial goals by at least three years. Even when salaries are being restored in offices, it is not enough to match the rise in the cost of living. While most of my clients are still committed to insurance and pension plans, their other savings are skewed by 30- 35 per cent,” Rohit Jain, another financial advisor, said. Jain also added that while people in the lower income bracket are cutting investments. those in the high income brackets are investing more.
“There are two opposite trends in investment. My clients who have monthly disposal above Rs 2 lakhs have hiked their mutual fund and equity exposure and are investing more aggressively, more than the pre-pandemic period, riding on the bullish market. And some have got good returns too. The income divide was always there. It has just gotten worse thanks to the pandemic,” Jain points out.
Prioritise expenses
Often, in such situations, people cut down investments drastically or completely stop them.. But this may prove to be a fatal strategy in the long run. Instead experts advise trying to prioritise expenses by cutting down unnecessary spending and ensuring continued investment even if one can only invest smaller amounts.
“While we understand the loss of income, we advise against cutting on investment decisions or worse postponing it for the next year. Invest even when it is 15-20 per cent lower than last year,” says Malhotra.
You can also prioritise some investments over others. You may like to continue investing in your core portfolio composed of mutual funds, bank deposits, Employee Provident Funds and PPFs. You may reduce or completely stop investments in direct stock, gold, and crypto-currencies. However, equity continues to give good returns, so continue equity mutual funds. EPFs and PPFs are also good investments given their risk-return trade-off. Some extra money in the savings account will also help in emergencies.
Of course, you must not stop your term life and health insurance policies.
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