Salary and job cuts have taught families to curtail unnecessary expenses and save more aggressively
One of the major realizations people have had is that how little they need and how much they want
Though the economy is gradually opening up, the financial distress that most households face is far from over. According to a study on consumer sentiment during covid-19 conducted by Generali, an Italy-based global insurance and asset management company, about 80% of the working class in India has experienced loss of income and over 90% of them are preparing for more hardship in the future.
The fear and anxiety is real. “Even government employees are worried about a reduction in salary. Professionals such as doctors too are seeing a dip in income. Self-employed are the worst hit. It could take a few years for normalcy to return, so this is the time for a reality check," said Melvin Joseph, a Sebi-registered investment adviser and founder, Finvin Financial Planners.
Mint spoke with four households to understand the impact of covid-19 on their money lives and how they are dealing with the uncertainty.
Cash flow hit
The family of Ritika Kinger, who manages a restaurant in Bengaluru, has been doubly hit as both she and her husband work in the hospitality industry. “We were not prepared for this. While we do have an emergency fund, I’m afraid it may not see us through this period of uncertainty," said Kinger.
Still, the 30-year-old is doing all it takes to cushion herself from the liquidity crisis.“We’ve cut down our spends by 30%. We have taken measures like surrendering our gym memberships and opting for online fitness classes," said Kinger. The couple has also cut down on their investments for a few months.
Saurabh Bansal, founder, Finatwork Wealth Services, a financial planning firm, said fixed household expenses such as rent, utilities and groceries and EMIs are not under one’s control and, therefore, people have to lower lifestyle expenses or hold off investments.
The family has had to deal with some health scares in the last few months. Kinger said they’re focusing on saving more to deal with health emergencies. “I am considering a minimalistic lifestyle going forward so that we don’t suffer in case of any future crises. We’ve had discussions about this as a family," she added.
Shweta Jain, founder and CEO, Investography, a financial planning firm, said one of the major realizations that people have had since the lockdown is that how little they need and how much they want. “I believe unnecessary expenses will drop in the near future, at least as long as people remember the impact of covid-19 on their money," she said.
Bengaluru-based Stuti Jain, 39, has trimmed her household budget significantly post covid-19. Jain’s husband did have to take a pay cut but they’ve been able to manage their expenses. With barely any outings and less shopping, the family has been able to save a chunk of money. “Covid-19 has taught us how to spend wisely on things like outside food," said Jain, who works with a healthcare provider.
The family is focusing on moving whatever they save into investments but will also put aside some money for a holiday once it’s safe to travel. Joseph said one must not get tempted to spend just because the economy is opening up. “The government wants people to spend to boost the economy, but as an individual, you must first look into your household finances and avoid unwanted expenses unless you can afford them."
There’s a shift in the way people spend to some extent. Dipika Jaikishan co-founder and chief operating officer, Basis, a content-driven financial services platform, said earlier people would just replace things, but not anymore. “Households are now looking to repair things rather than replacing them," she said.
Realigning money bag
The pandemic has helped Gurugram-based Atul Bali to introspect on his saving and spending patterns. Though there has been no impact on Bali’s double-income household, the family is planning to add to their emergency corpus and repay loans, besides curtailing unnecessary expenses.
Many families are on a similar trajectory now. According to a recent BankBazaar survey, 52% respondents said saving, investment and debt repayment is their top priority.
The Balis cut their household budget by 25% and is focusing on saving. “We’ll raise the quantum of investments in recurring deposits and mutual funds (SIPs) which in a way is forced saving. We are also working on having a fixed budget for overhead expenses and trying to foreclose our loans," said Bali.
Bali believes saving is the only way to tide over tough times. Given the current market volatility, there has been a slight shift towards safer instruments.
Joseph said though many have heard about a market crash, most are experiencing it for the first time. “Even debt investments are shaky and interest rates are coming down. Most investors are sitting on a reduced portfolio now. It will take a few years for investor confidence to return," he said.
NO MORE HOARDING
The extended lockdown gave Harsha Thakkar, 35, some time to comprehend her habit of hoarding things. “I have about 10 bottles of perfume and I’ve not exhausted even one of them. I would go out and shop during sales without thinking. I’ve realized that I have clothes that can last me a lifetime," said Thakkar, a homemaker.
After the lockdown, the family’s expenses have dropped by almost 40% and Thakkar said they want to stick to this. “Now that we are used to eating home-cooked food, I think we will be able to maintain this," she said. They are now focusing on having more liquidity to ensure they are not in a fix if another lockdown happens. “Also, we don’t want to liquidate our existing investments," said Thakkar.
The fact that lifestyle expenses have gone down (due to the lockdown) means people got some breathing space even if there have been pay cuts, said Bansal.
Jaikishan said there could be a possible second wave of covid-19 infections and tougher times could be ahead of us. The economy is opening up but be cautious about where and how you spend.
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