Three Steps to Financial Stability

We are living in uncertain times and the last thing one cares to read about is yet another article on how to manage your finances. I agree to certain extent. But now, the economic crisis brought on by the COVID-19 pandemic has made this conversation more important than ever. It has become imperative to know and understand where you stand financially and the steps you must take to ensure that you and your family get through this crisis unscathed. As a financial planner, I am often asked, “I know I need to strengthen my finances but how do I begin?”

Here are three simple steps that you can take to gauge your current finances and what you must do to strengthen them:

 1. Take stock of your emergency funds

This year has been unique because it has brought the question of what constitutes emergency savings to the forefront. Today, more than ever, it is time for you to protect yourself and your family against any unforeseen circumstances. If you have not been saving up for that rainy day, then it is still not too late to start. Take stock of your current income and then calculate the average monthly expenses of your household as a first step towards starting your emergency fund. Based on that calculation, your funds should constitute savings and investments that can bide you over at least 3-5 months of not having a regular income in case of unforeseen emergencies such as hospitalization or a job loss. If you already have that fund, look at ways you can add to it without compromising on your more immediate needs.

 2. Avoid the consumerism trap

It is all too easy during times like this to get swayed by the deep discounts being offered on various goods and services. But stop and think. Do you really need those goods and services immediately or can you do without them for some time? If you really do need to buy a product that might need a considerable investment, for instance a consumer electronics item, weigh the options available in the market and compare them with what you are willing to spend. By taking these steps, you will have bought something that gives you value for money instead of an impulse purchase that could have you regretting it as soon as you get the product. Use this as a rule even for smaller purchases. It not only helps you to save money, but also guards you against wasteful purchases.

 3. Recheck you investment portfolio

If you’re already investing in shares, mutual funds, or other financial instruments, then now is the time to see where your portfolio stands and make some common-sense changes to it to ensure that you minimize the risks that an economic downturn tends to bring. Consider moving some of your high-risk, high-returns investments like shares and stocks in new companies to safer, more dependable ones like long-term mutual funds, that might not give those rates of returns but are more likely to help you with steady returns during a recession.

While a financial advisor can help you balance your nest egg by recommending the changes and the right mutual funds, you should make them aware of your needs and where you stand financially so that they can factor in those changes when they make their recommendation. If you follow these three basic steps, you can manage your way through this year with flying colors towards a more secure financial future.