Covid-19 has caused damage across sectors across the country, leading to massive layoffs and pay cuts. The gloomy economic outlook and financial uncertainty have significantly affected the financial life of individuals and professionals. According to a survey conducted by IndiaLends, a digital lending platform, 82% of respondents said they were struggling to make ends meet.
About 5,000 respondents participated in the national survey.
Dipika Jaikishan, co-founder and COO of Basis, a content-driven financial services platform, said before the lockdown that most people did not rely on their lifestyle spending and frivolously spend on entertainment , consumables and lived on rolling credit.
Jaikishan knows people who still pay IMEs for vacations they took 10 months ago. “Covid-19 has forced people to take every little expense into account. In the race for instant gratification, people often get it wrong with financial planning. The current scenario should be seen as a red flag and difficult to distinguish essential income and expenses from pleasant purchases, ”she said.
Additionally, 84% of those polled said they were cutting spending to get through the crisis and 90% expressed concern about their savings and financial future.
Aditya Mishra, Founder and CEO of Switchme.in, said there are two common mistakes people make. First, most people are reluctant to plan because it takes time and effort. Second, people often go beyond their means while making financial commitments. “This is more true for the middle income group than for the rich. Both things have added to their misery since the installation of Covid-19. “
According to the report, 72% of people said they would opt for a personal loan in the immediate future to overcome the crisis and meet their priority expenses such as debt service, school fees and home repairs.
However, be aware that taking out a high interest personal loan to pay off an existing loan could further hurt your finances. “Major lenders would refuse to lend in such cases. It’s a perfect recipe for a debt trap, ”Mishra said.
Taking out personal loans to pay off existing debt has been an endless loop in the Indian financial system, which has given way to the huge credit market that we are seeing, Jaikishan said.
Loans are not recommended for non-essential expenses. “For example, educating children is essential, while spending on home renovations is something that can be delayed. If someone is already struggling to manage their debts, then taking out a personal loan is a bad idea, especially if your income and your job are unstable given the current crisis, ”she added. Any loan you take out should be appraised to see if it adds value. Payday loans are a new fad that you should avoid.
According to IndiaLends, 45% of its customers who already had existing loans requested a moratorium on IMEs due to their inability to repay. Most digital loan companies offer short term loans at high interest rates.
“Due to wage cuts and job losses, borrowers are in shambles and unable to repay their loans, leading them to opt for the moratorium despite the cost that accompanies it. They will have to pay a lot more later. Don’t go for the moratorium. Instead, cut your expenses and liquidate some investments if you have to, ”said Basavaraj Tonagatti, Sebi registered investment advisor and certified financial planner.
Up to 63% of those polled said their focus on spending on clothing and accessories would decrease, while 40% said their spending on essentials would increase. Over 70% of those polled said they would control their travel, entertainment and vehicle spending.
To get through the ongoing crisis, experts said there were a few key things to do. First, build an emergency corpus. If you have one, improve it because no one knows when things will get better. “Start by saving for at least three months of spending. Your essential expenses include expenses such as housing (EMI or rent), utilities, education and living expenses, as well as a 20% cushion for surprise expenses, ”Jaikishan said.
Second, involve your family in the financial planning process and discuss money. Third, compartmentalize your spending by creating separate compartments for wants and needs. Fourth, automate your savings and investments so you don’t take unnecessary breaks in your investments. Fifth, limit your debt as much as possible. It will give you a sense of financial security and relief, especially in these uncertain times. And finally, make sure that you and your family have adequate health and life insurance.
“Take time and study your finances seriously. Seek help from friends who are better at financial planning if there are things that are difficult to figure out. Take professional advice if you wish. This crisis should push you to take charge of your financial life, ”Mishra said.
Never miss a story! Stay connected and informed with Mint. Download our app now !!