You've survived coronavirus but don't burn your money yet

Growing up, there were three things my brother and I looked forward to in the summer holidays. Lounging around the house doing absolutely nothing the entire day, cannonballing into the pool at the water park, and routinely binge-ing on the Salman Khan-starrer Mujhse Shaadi Karogi. I am unashamed to admit that doing the towel dance to Jeene Ke Hai Chaar Din was a mainstay of my childhood (any future partners reading this are strongly advised to delete this nugget of information from their brain). But it wasn’t just the towel dance that we learned. In a surprising turn of events, bhai-turned-economics professor Salman gave us a lesson that would — decades later — help us in saving money after lockdown: separating your finances according to your needs.

Although I have long outgrown our piggy-banking ways, when the lockdown struck, I found myself saving my chillar in my then-redundant makeup kit-cum-gullak. And apparently, I wasn’t the only one. Research has shown that Indians saved an additional $200 billion during the lockdown.

Schubert Mendes, a Goa-based wealth manager, says there has been a massive shift in not just our lifestyle, but also how we look at saving money after lockdown. “Having just come out of a destructive phase, many have the mentality of wanting to live life to the fullest, without any attached terms and conditions.”

This comes as no surprise, considering most of us spent the last year and a half salivating over pictures of beach-side dinners, dreaming of living our own versions of Zindagi Na Milegi Dobara or simply wanting to go back to living like the big-city rats that we are.

Now that we are successfully — or unsuccessfully, according to data — crossing over to the other side of the pandemic, many of us have forsaken our mask-wearing, penny-counting ways and gone back to our old I-survive-on-McDonald’s lifestyle.

Not to be the harbinger of existential grief, but in our furious bid to delete the last year from our memories, we’ve also forgotten the simple fact that COVID-19 changed our lives overnight — literally. Some were lost, and some were displaced, all within a matter of seconds.  While we might have replaced our real-life BFFs with the likes of Amazon and Myntra and are once again itching to plough through our travel bucket list, it’s important that we save the thing that makes it all possible: money. Cushioning yourself with substantial savings won’t hurt anyone, will it?

For the sake of my weeping — howling, more aptly — bank account, I spoke to financial advisors on how to do the one thing that had always eluded me, my One that Got Away, if you will. Saving like a responsible adult.

5 tips to keep saving money after lockdown without turning into a monk

Set a budget ratio

Priti Rathi Gupta, the founder of LXME, a financial platform for Indian women, says the first step to keeping your saving habit going is budgeting yourself. “You can budget yourself for 2-3 months to understand your spending habits and how many of them you can actually stick to.” You’ll need to consider how much money you can spare, where you want to save it, and how often.

Sneha Jain, a financial advisor on Miss Piggy Banks, a user-centric platform for managing finances, recommends listing down all the sources of your income. “Start tracking your expenses down to the last rupee to see where your money is going. Take a hard look at all your expenses and ask yourself what you really need and what you can do without.”

The best way to budget yourself, Mendes says, is devising a budgeting ratio of 50:20:30. He suggests keeping 50% of your pay to be spent on your essentials, 20% for your savings, and the remaining 30% can go towards your lifestyle needs— restaurant dinners, your gym membership and other things.

You would be much more likely to stick to a saving habit in the long run if you put aside a certain amount to save while also making sure you don’t lose out on the activities you enjoy doing.

A budgeting app may be able to assist you if you want to better manage your savings or want something more in-depth – such as the ability to set a budget for each type of expenditure category. There are several options; some employ open banking technology to link your bank accounts and credit cards for a comprehensive view of your money, including suggestions for adjustments or savings you may not have considered.

This might include advice for cancelling unnecessary subscriptions or switching to cheaper mobile phones or electricity tariffs to free up more money each month.

Different bank accounts will help you with saving money after lockdown

Gupta recommends opening at least three bank accounts. “You should have a primary account where all your earnings come in. Set up a system so that your savings get automated to another bank account at the start of each month. And the rest of the money should go to your spend account.”

The rule of thumb for Gupta is that money from the savings account must never move to the spending account. It’s a good idea to move the 20% savings out of your current account as soon as it comes in – that way, you won’t miss it, or be as tempted to spend it.

More significantly, having numerous savings accounts allows you to separate your money for different financial goals. For example, you can keep your emergency savings in one account while using other accounts to fund other ventures, save for monthly expenses, and so on.

You may also keep a separate account for all of your significant EMIs, such as home and vehicle loans. Spreading out your savings can help you accomplish all of your goals in a disciplined manner by ensuring that money set aside for one reason isn’t diverted to another.

Jain recommends setting goals for yourself that will make you want to save more. “Set a goal like buying a car in 5 years, then you may save more today to meet that goal and not spend on things or items you may not need at all.”

Create a passive income flow in the form of an investment portfolio

Your investment portfolio is a collection of financial assets such as bonds, equities, currencies, cash and cash equivalents, and commodities.

Do you remember when you would go on school trips, your parents would hide the money in different places because they somehow knew you were going to forget your wallet in a shop and then cry about it later? Just like that, an investment portfolio is a collection of investments in order to make a profit while preserving cash or assets.

Mendes recommends creating a portfolio that can give you an income equal to your business or salary. “The best part about this is that your dependence on your salary will become zero, which is especially essential in a post-COVID environment,” he adds.

Investment portfolios help you to multiply your wealth by the magic of compounding, according to Jain. Mendes, too, proposes the principle of delayed gratification because this kind of wealth takes some time to build.

“Although you might not be able to buy that Louis Vuitton bag today, or plan a world tour just like that, somewhere down the line, say after 3-5 years, you will start spending the profits that you’ve been making, and not your capital, which is exactly what wealth generation is about. There are things like balanced and opportunity funds that you can invest in, which are aligned with the market so your investments will grow as they grow,” says Mendes.

Assessing the performance of your portfolio on a regular basis might help you stay on track to meet your financial objectives. If your portfolio’s performance falls short of your expectations, you must investigate and pinpoint the cause with the help of a financial advisor.

Diversify your investments

The idea behind diversification is that a variety of investments will yield a higher return. It also suggests that investors will face lower risk by investing in different vehicles. A diversified portfolio helps your overall investments to absorb the shocks of any financial disruption, providing the best balance for your saving plan.

The first place that you should put your money in, according to Gupta, is health insurance, with a cover of at least Rs 4-5 lakh. “Although insurance is a cost, it’s a cost worth having, especially after the havoc that COVID-19 has caused in our lives,” she says.

The next step is to ensure that your money is growing, and not losing its value. “You’re saving today to spend tomorrow so when you talk about fixed and recurring deposits, they don’t take into account the inflation rate, which is actually making you lose your money then,” says Mendes.

For the uninitiated, the inflation rate is why moms are always complaining ‘sabziya mehengi hogayi hai’ or why your brother never fills up his car’s tank.

The ideal way to ensure that your money is growing exponentially is to put it across different asset classes and diversifying your investments. Although you can go the traditional route and put some money into FDs or RDs, Mendes recommends parking your money into mutual funds and electronic instruments like e-gold.

Stocks and bonds are the two most common kinds of investment, in general. While stocks are thought to be high-risk and high-return, bonds are more stable and have lesser returns. You should split your money between these two choices to reduce your risk exposure. The challenge is to strike a balance between the two, to find a happy medium between risk and certainty.

The allocation of assets is usually determined by age and lifestyle. You may take a risk with your portfolio when you’re younger by investing in high-yielding equities. Subtract your age from 100, and this is the percentage of stocks in your portfolio that you should have. For example, a 30 year old may invest 70% in stocks and 30% in bonds.

However, when making these selections, you may need to consider your family’s financial situation. If a large amount of your family’s spending is shared, you should be more cautious with your assets. It would limit the amount of capital you have available, so you might want to play it safe by investing more in bonds.

Create an emergency corpus

This is the first and foremost thing you should be doing with the saved money, particularly in an uncertain economic situation such as the present one. And no, we’re not talking about that fat bundle of 2000 rupee notes that you’ve hidden in the aata drum.

According to Jain, creating an emergency fund is one of two key aspects of planning your personal finances, the other being luxury bags… err health insurance.

An emergency corpus is essentially a sum of money sufficient to cover your monthly needs in the event of a loss of income. Mendes says it’s a good idea to have enough money set aside to cover six months worth of expenses. Experts have advised people interested in saving money after lockdown to have a corpus of up to 12 months’ expenditures, particularly those working in vulnerable sectors like tourism and aviation.

So if your monthly expenses are Rs 50,000, your emergency fund should be between Rs 6-7 lakh. This money should be kept in a safe place where you may withdraw it at any time without losing any of your money.

As we begin saving money after lockdown, it’s critical to have the emergency fund in liquid assets. You can put some money in a savings account, and liquid funds are also a good place to put your money because they are tax-efficient in the long run.

Have you received a job bonus, a tax refund, or a cash gift from a friend or relative? Set aside a modest amount for fun and put the rest towards your emergency fund. Including any unexpected gains that might help you achieve your objectives faster. Gupta recommends increasing your contribution to the emergency fund and retirement corpus rather than raising your spending with a raise in pay.