Most of us are witnessing unprecedented times. Thanks to an unfortunate phenomenon called COVID-19 that started at the beginning of 2020 and engulfed an entire world in no time. We have already heard enough about the social, cultural, and economic consequences of this crisis. In fact, we are witnessing it right now with our naked eyes. In India, the unemployment rate has skyrocketed to ever high figure of 23%.
About 66% of families have reported an income loss since the nationwide lockdown in India that started on 23rd March 2020. If a single word that could aptly describe how does our tomorrow looks like, that is “Uncertain”. Has anyone ever wondered where does this uncertainty come from? We earn money to buy things required to live life. Some requirements are immediate, some are near future while others are long term. And many of us just don’t know right now whether we have sufficient funds in pocket to fulfill our requirements.
Therefore, the right answer is poor financial planning. Although, we could never anticipate a phenomenon like COVID-19, good financial planning in the past could help to minimize the intensity of the uncertainty.
A general misconception about financial planning is that it is optional and unnecessary as long as you can pay your monthly bills. That’s when things turn messy. We are never taught to think of our entire life as a budget and plan for it. A crisis like COVID-19 exposes this behavioral flaw. There are some effective and widely accepted strategies when it comes to budgeting or financial planning. Have you ever heard of the 50-30-20 rule? Here, 50% belongs to the needs, 30% belongs to wants, and 20% belongs to the savings portion of your income. Need is your fixed expense that is unavoidable and necessary to live a basic life. It could be your immediate expenses like food/grocery, monthly bills, EMI obligations, healthcare, education, etc. or annual expenses like health or term insurance premiums. Want is typically a variable expense that is occasional.
Buying clothes, dining out, movie outing, etc. could be tagged as a want. Finally, when it comes to savings, it is advisable to have some (if not all) goals in mind to be sure that savings are sufficient to fulfill the dreams. A saving could be for an emergency fund, goal-based fund like vacation/buying a gadget/buying vehicle, retirement fund, etc. In short, listing all the potential areas of expense and saving requirements in immediate, near future, and long-term timeframe is very critical in any financial planning. But that’s not the end. Knowing potential expense areas is just a start.
The second step is to set up a budget according to your expenses and saving goals. This is the trickiest part as you may not find a sweet spot at the first go. Any financial plan is a continuous process that needs revisions and corrective actions as you start following the plan and tracking its progress. But that’s where lies a real beauty of financial planning. It uncovers the pain points that are not visible otherwise.
Take a simple example of a gaming fund of Rs.12,000 to buy your most favorite gaming console. You are planning to keep aside Rs.3000 each month and expected to buy it by the fourth month. But as start tracking your budget, you realize your monthly immediate obligations and an emergency fund that has a higher priority in your planning is eating up your majority of the inflows thereby do not allow you to pay the monthly installment towards gaming fund.
Now you can take an informed decision to either delay your plan by reducing the installment or cut down on monthly expenses if possible. The same philosophy applies to your other goals in life all the way till your retirement. While, you must have noticed that it is a long-term process that needs patience, dedication, and discipline, the outcome enables you to take control of your dreams and fulfill them without any hassle.
This is exactly Mihuru’s new financial planning platform is all about. Driven by a mission to help people make healthy financial decisions, Mihuru is launching a platform that would simplify financial planning and be your companion in the journey to financial wellness. While we are launching a first version with most essential features like budgeting and expense tracking, a lot more exciting and advanced features like savings fund management, wealth/investment management, insurance planning, and debt management advisory are on its way and would be part of subsequent releases. Mihuru’s aim is to democratize financial planning post COVID and make it a habit that is fun and effortless. It is the only way forward if you want to live your life without any compromises in the post-COVID-19 world.
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