5 financial tips to tackle situations like COVID-19 pandemic

The pandemic has taught us the significance of financial preparedness, as during the peak time of COVID-19, it was the inability to pay for treatment that claimed many more lives than the disease itself. Many businesses that did not plan their finances well shut down, and there were job losses on huge scale. As COVID-19 cases are on the rise again, it is necessary for us to keep track of our finances. Here are some tips on how to deal with emergencies when preparing finances: 

1.  Build an Emergency Fund

An emergency fund is the most initial and crucial part of preparing for finances. This is a saving that a person can rely on when they have no other option. An emergency fund is a separate savings account that you set aside for unexpected expenses, such as car repairs, medical bills, or job loss.

According to CA Ruchika Bhagat, MD, Neeraj Bhagat, and Co, the general rule of thumb is to save at least three to six months of your living expenses in an emergency fund. This can give you peace of mind and help you cover your bills in case of an emergency.

How to build an emergency fund? 

An emergency fund can be built by setting a savings goal and creating a budget. One should look for ways to cut back on their expenses and redirect that money to their emergency fund. One can also automate their savings by setting up a direct deposit from their paycheque into their emergency fund.

2. Insurance cover 

Another important component of your financial emergency plan is insurance. Adequate insurance coverage can safeguard individuals and their families from financial damages caused by unforeseen catastrophes. Health insurance, for example, can help pay for medical expenditures, whereas auto insurance can help pay for automobile repairs or replacements.

According to Bhagat, if one owns a property, they should ensure that they have enough homeowner's insurance to cover any damages or losses caused by natural catastrophes or accidents. Consider obtaining renter's insurance to secure their personal items if they are renting.

3. Priotise expenses 

It is critical to prioritise the costs in the event of an emergency. Begin by listing essential expenses, which include food, housing, utilities, and transportation. Then, include non-essential costs like entertainment, travel, and eating out.

4. Talk to your creditors 

According to Bhagat, if one experiences a financial setback, such as job loss or medical bills, it is essential to communicate with their creditors and work with them to develop a payment plan or offer a temporary deferment.

Ignoring creditors can lead to late fees, penalty charges, and cause damage to your credit score. By communicating with them, one can avoid these negative consequences and work towards resolving their financial crisis.

5. Avoid Using Credit Cards

While credit cards can be a useful tool for building credit and earning rewards, they can also be dangerous if misused. Using credit cards to pay for emergencies can lead to high interest charges and debt accumulation.

According to Bhagat, if one has an emergency fund, they should use that money first to cover their expenses. If they do not have an emergency fund, consider using other sources of funding, such as a personal loan or a line of credit. These options typically have lower interest rates than credit cards and can help you avoid high-interest charges.

Catch latest stock market updates here. For all other news related to business, politics, tech, sports and auto, visit Zeebiz.com