The year 2020 is forgettable but the lessons should not be forgotten. The crisis and uncertainty sparked introspection in many people who lacked proper support and were not ready to face financial challenges. One of the many challenges most people faced was declining income or worse yet, loss of jobs; those who depend on the company’s income have also faced uncertainties with store closings.

The fundamental mantra of being “cash-wise” is to build a financial security barrier around us. The following points would be helpful in dealing with difficult situations that may arise again unexpectedly in the future.

READY TO EARNING QUOTIENT

Loans are mainly taken out to fulfill dreams and aspirations, and home loans remain the largest in terms of size and longest in terms of repayment term. Most of your income is gobbled up for home loan EMIs and you have to be careful enough to plan for repayment capacities and only commit affordable amounts.

Ideally, income should be divided into three parts of 1/3 each: towards compulsory household expenses; all types of EMI; and invest for future life goals. Simply put, if one earns 60,000 per month, 20,000 should be allocated to each of these three important aspects.

HOME LOAN INSURANCE

When taking out a mortgage, the total amount of the loan must be insured; During the long repayment term if the borrower dies, the insurance company will settle the loan contributions with the lender and the house will be free of any mortgages in favor of the surviving family members. In fact, the single premium can also be associated with the home loan which is merged with the global EMI. Thus, there should be no reason not to insure the loan.

PREVENTION FUND

The pandemic has taught the best lesson in financial prudence; keep aside either in a liquid fund (a low-risk debt mutual fund) or in a fixed bank deposit the equivalent of six months of mandatory financial commitments, including household expenses, all types EMI, rent (if applicable) and other unavoidable liabilities. For example, if the monthly household expenditure is 15,000, the IME 20,000, and the monthly rent is 10,000, then 45,000 x 6 = 2.70 lakh must be invested separately to deal with any eventuality that may arise in the future. ‘improvist.

FIXED OR FLOATING RATE

While banks and lending institutions are quick to raise the interest rate when interest rates rise, they may not show the same enthusiasm when rates are cut (based on monetary policy announcements made regularly by the RBI). Still, it would be a good decision to choose a variable rate loan option rather than a fixed rate option.