Articles: Safeguarding Savings in Pandemic Times

Speaker : Mr. CA. Pattabhi Ram

Platform: Youtube

The Stella Maris College, Chennai, had organised a webinar on "Safeguarding Savings in Pandemic Times" on 13th May 2020. This article is an effort to record the summary of the subject matter of the online seminar attended during the COVID-19 lock-down and also include a portion of my research towards the subject.

Flow of contents

Financial personality
List out GOALS
Rules of Thumb
Closure Points

Financial Personality

To Manage and safeguard savings, one has to first identify what type of financial personality he/she belongs to. Financial personality is nothing but how the personality traits affect "how he/she manages finance", beliefs about money and how the financial goals are decided. It is good to know and understand the same, because it would help in managing finances better.

Play the following Financial Personality Quiz to know your personality.

List out GOALS

Financial goals are goals which one expect to achieve for the benefit of self or family. It can be for a short term or long term. Examples: Paying off existing debt, saving for retirement, building an emergency fund, purchasing/ renovation of a house, saving for a vacation/ new start-up/business etc. It can vary from person to person and may change over time. Every individual need to prioritize the goals listed , decide on the target date (before which the goal is to be achieved) along with the target amount of money needed for the same.

Rules of Thumb

How much to save monthly?

Senator Elizabeth Warren popularised the "50/20/30 budget model" in her book, "All your worth: The ultimate life-time money plan." According to this model, the income after tax is to be spent as 50% on needs, 30% on wants and 20% on savings. But, not everyone can rigidly follow the above rule. According to financial experts, minimum 10% of the income needs to be saved and if one has planned for early retirement, then 20%.

How much to have in Emergency Fund?

Emergency fund is a reserve where a certain sum of money is set aside, in order to meet unforeseen future contingencies/ emergencies like loss of job, illness or an unexpected expense. A general rule-of-thumb is that this fund should contain enough to cover 3 to 6 months living expenses. The difficulty in filling the emergency fund can be overcome by giving an auto debit from SB account or allocating part of additional income earned by way of income tax refund, cash gift etc.

How much of assets be in Equity/ Bond?

According to the rule of thumb "age in bonds" is considered to be ideal, that says age is subtracted from 100, where 100 is the expected longevity. For eg: If Mr. Peter is 40 years old, then his ideal investment in equity / bond should be 100- 40 =60%.

How much of debt is ideal?

The rule of debt is 28/36. According to this rule, one should spend 28% of his/her income on home related expenses and not more than a maximum of 36% on debts like housing loans, car loans etc.

How to plan for retirement?

Retirement planning can be done by following 2 steps- save as much you can and invest as much you can. The earlier you save and better the investments, the investment corpus is big. EPF, PPF, pension funds, NPS, bonds, equity & debt funds, bank deposits, insurance policies are few schemes where you can save for retirement.

How much insurance is necessary?

For any individual, life and health insurance is inevitable, the former to cover life and the latter to cover unforeseen expenses due to hospitalisation/ terminal illness. One basic thumb rule is that one should have death benefit of 7 - 10 times of the annual salary, from the policy. Changing life styles, rising medical costs, tax benefit U/S 80D, coverage of pre and post hospitalisation expenses are the few reasons why health/medical insurance is needed for everyone.

Closure Points