Tough times are the best teachers. They push us to be better versions of ourselves, resolve, show courage and practice self-reliance. Often there is a great leap of faith during uncertainty, attempting to control only what we can and focussing on the basics, leaving everything else to fate. The past few months have seen our lives turned upside down. There is social distancing, working for home, learning from home while we fight a faceless pandemic.
On the financial front too, there is uncertainty and volatility and there is some fear of job losses and/or pay cuts. If you are in business, depending on the nature of the business, you may be facing a huge liquidity crisis, losses, bad debts and so on. Even with all these challenges, we believe times will improve and ‘this too shall pass’.
There are many lessons we have learnt for life. None so important than the need to be financially secure and settled. One may see this as financially self-reliant, self-dependent or as financial freedom. Whatever colour you may give, there is a clear trend towards being ‘atmanirbhar’ when it comes to your personal finances. In this article, we attempt to chalk a roadmap to aid you in walking this path.
ASSESSING WHERE YOU ARE
The first step is obviously to have a clear and fair understanding of your present financial situation. The following questions can be of great importance.
- What is the present Net worth? Investments, assets and liabilities?
- What are monthly income and expenses?
- How adequately are I and my family insured wr.r.t life, health, accidents, etc?
- Do I have an adequate emergency fund should I need it?
- How am I spending my income; what are the major heads of expenses?
- Why is there a gap between the expenses and actual savings?
- What is my total asset allocation into equities, debt, physical assets? How are they performing?
- What are my financial goals? How have I planned for the same?
- What is your credit score?
Needless to say, these are just the starting questions but still a very good starting point. Ideally tabulating and recording answers to these questions should not take more than a couple of hours. And surely, one must attempt to do this as early as possible.
We would also encourage our readers who are married, to make time to discuss joint goals, issues and concerns with your spouse and even kids. Get everyone on board to understand the challenges and goals you all want to face together as a family. Possibly, your family can be of your greatest strength today. It will also prepare everyone for living within means, anticipating life changes, accepting the challenges, learning to compromise and manage as a team.
FORTIFYING YOUR PRESENT
Procrastinating is not possible now and detrimental to long-term financial health. After you identify the gaps in your personal finances, the next step will be to address them. This is the crisis where we need to get your act together in all aspects of our finances – investment, protection, savings, spendings, goals, etc. Here is what you can do and perhaps many would have already acted on the same…
BEHAVIOURAL CHANGES FOR THE FUTURE
Living within your means:
We can expect a lot of people to severely curtail expenses, especially those which were financed by debt or credit cards. People will use debt only to make investments in things that gain value, such as real estate, a business, or an education. People will also do well to stop using credit cards and use only available cash /bank balance to spend in order to curtail expenditure.
Tracking your net worth and financial goals:
Assessment of your financial well-being is not a one-time activity but a regular exercise. Check how well you are spending and saving and if you are building on your net worth. Everyone must have their financial goals defined and ensure a regular track of progress.
The above are few but crucial steps we believe would go a long way towards achieving financial success. There are many things which must be running your mind. However, unless an honest beginning is made, nothing can be accomplished, however big or small. Most of us would have done introspection on many aspects of their lives, including finances. When experiencing adversity, it’s crucial to accept our flaws, mistakes, and imperfections and then move ahead. However, with love, faith and support of our loved ones, we can move forward with strength, and change any adversity to opportunity. It is an opportunity for you to prove to yourself how strong you really are. As someone rightly said once, “we don’t develop courage by being happy every day. We develop it by surviving difficult times and challenging adversity.