Diwali revolves around the traditional worship of Goddess Lakshmi, the goddess of wealth, fortune, joy and prosperity. In light of this tumultuous year 2020, we witnessed the effects of the pandemic and financial ups and downs it brought with it. It is but natural we celebrate this festival of triumph over darkness with vigour and invoke wealth and prosperity this Diwali. Here are some crucial financial lessons that 2020 teaches us.
Precaution is way better than cure. We have worn masks, used sanitizers, washed our hands and stayed indoors to ensure we secure ourselves and our family from the virus. But have we done enough to protect our family from financial insecurities?
Do you have an emergency fund that is easily accessible to replace your income for 3 to 6 months in case of a break in income? Do you have adequate insurance to cover you or your family’s medical expenses if hospitalized without having to dip into your investments? These are basic safety measures that must be in place before you begin your investing journey. An emergency fund, term insurance and health insurances are like parachutes that can steer you to a safer landing avoiding the need to break quality investments, hamper goals or book unnecessary losses in situations of emergencies.
Debt is another hurdle that must be crossed carefully. Having the above safety measure in place can be one way of steering clear of unforeseen circumstances and situations that could increase your future debt. Clearing loans and reducing unwanted lifestyle expenses on credit is another way to reduce debt.
Festivals, occasions and other events are usually situations where you tend to let your guard down, leverage credit and overspend beyond your budget. Avoid such inclinations and ensure your expenses are always in check. Pre-closing loans, paying off credit card bills and avoiding any debt situations should be a top priority.
Remember: Investments come first and additional lifestyle expenses are secondary.
What’s your plan?
Achieving financial freedom is a goal which needs meticulous planning and prudent investing. The benefits of planning your finances in advance are way beyond measure. Smart investors meticulously plan and duly invest for future expenses and goals. This preparedness gives them the advantage of staying debt-free, beating inflation & market volatility and all of the above while leading a stress-free life.
Consider the current situation where job loss and business standstill is the norm, imagine the additional stress of having to accumulate a huge corpus for your child’s educational expense or to cover your business overheads due to lack of income.
If these foreseeable expenses were anticipated and planned for in advance a simple SIP investment could have taken care of this corpus seamlessly. Planning and saving today for foreseeable expenses, like business contingencies that require a huge corpus, can save you from financial woes tomorrow.
Divide to conquer
Unlike its old political connotation in historical settings, division in investments is a good move. It stands for diversifying your assets to avoid concentration in a single asset. This strategy ensures your investments are hedged against the risk of loss by parking your money in a single asset. Diversification across a mix of debt, equity and fixed asset instruments based on your goals and investible surplus gives you the benefit of gain across varied assets while safeguarding your capital from market volatility. In situations of market volatility investors must keep a keen eye on their portfolio to ensure the balance of assets are maintained by rebalancing to avoid concentration in a single asset class.
Quarantine has been a trending word this year where people have isolated themselves for precautionary measures. Similarly, to avoid loss investors investing in equity markets need to quarantine their investment in safer debt assets 1 to 3 years before the specific goal date to ensure accessibility and liquidity in time of need. Diversifying investments across the globe in different currencies hedges you against the risk of currency depreciation or geo-political implications and risks. Diversification is the key to conquering market instabilities.
Is your lamp lit to guide you to financial freedom?
A bit of prudence and planning can help you grow your wealth and ensure you evade financial pitfalls. This Diwali, let’s pledge to dispel the darkness and struggles that financial ignorance brings with it to brighten up our future.