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COVID-19 and Personal Budget

COVID-19 has shown us unchartered waters and what it is like to surf on its waves. The advent of this wave points at another dive into the abyss and dismal. The changes have affected personal budgets in the past and will continue through this wave. However, given a higher vaccination coverage and a shorter COVID wave cycle, the restrictions might not be as strict as the previous two waves.

What might happen

  1. Retail inflation: Retail inflation or CPI-based inflation estimates the change in retail prices of goods and services purchased for daily consumption. CPI (consumer price index) measures the weighted average of prices of a basket of consumer goods and services, including transportation, food, and medical care. The calculation includes prices in the base year and the current year. When COVID hit, the commodities prices (metals & agriculture especially) started increasing due to supply-side constraints. Due to the rising prices, the overall cost of production increased, which impacted consumption patterns, especially in the lower middle class and lower class segment.

  2. Low-interest rates: RBI and other developing countries will most likely follow the Fed’s actions as we further into the pandemic. Fed is expected to be hawkish in their approach to table their inflation. Moreover, the taper tantrum is another event which India will have to withstand, and India should be prepared given the historical taper tantrum effects in 2008-09. RBI is predicted to revise the repo and reverse repo rates and increase them. This will affect the overall consumption and production in the economy. The real estate sector, which was booming in the past year, may also see a decline.

  3. Volatile Stock Market: Currently, the virus has no direct impact on the share market. However, if the past is a teacher, the market might witness negative growth. According to some equity research companies, the markets will fall anything up to 6-7%. But the markets rebound quickly. Some industries which might see eroding share prices are the hospitality sector, airline, real estate, automobile, and manufacturing.

At present, various stakeholders are still assessing the relationship between Omicron and the share market. This has led to some confusion and volatility.

How can you prepare?

As the economy keeps facing pressure from the virus, we suggest you do the following:

  1. Start investing: Since the returns in banking instruments are predicted to remain low, stock markets or mutual funds are two good places to start investing right now. As the markets face volatility, buy small quantities of a company’s shares to maintain a healthy average price. Remember, markets rebound quickly. You can expect an imminent rise in stock prices soon after the outbreak fades.

  2. Buy insurance: Hospitalization has been a necessary expense for many households since 2020. It is best to plan for these expenses. Buying insurance can cover you for an enormous sum at the hospital than paid in the EMIs. You will have to explore the choice between health insurance or life insurance based on your budget and insurance requirements and expectations.

  3. Plan your expense: During lockdowns, since most of the outdoor expenses are curtailed, you have the potential to save and invest at a higher rate than before. Plan your monthly expenses keeping in mind that eating out, travelling, and transport costs will be very small or even negligible.

COVID-19 is definitely a dark side, but we don’t want you to give up. In fact, nobody wants it. We suggest that you prepare not only for the course of the virus but how you plan on living after the pandemic. Start building your wealth today.

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