The rule for the evolution of species is simple. It is not the greatest, biggest or the strongest that survives and win, but the ones who are the fittest and adapt fast to their environment. The recent crisis is a challenge to us but our human instincts to adapt fast and find opportunities for growth will surely keep us well. However, we need to act fast and take bold decisions, starting with putting things down on paper. Lets prepare our Survival kit
1. Don't Panic Remain Calm
Investment experts on TV and financial advisors urge investors to be patient and disciplined in volatile markets. How do we stay calm and not panic in such times? This is easier said than done because nobody likes to lose money.The answer is, to invest according to your risk appetite. Different investors have different risk appetites. Also to remember that investing is for the long haul and in most cases, trying to time the market is a losing game. You may want to follow the advice of many investing experts, be calm and just stay the course.
2. Evaluate Risk Tolerances
Every investor is unique and has different risk appetite and risk-tolerance levels. The following factors will help you decide your risk appetite and risk-tolerance level.
- Financial Responsibilities
- Nearness to goal
- Sufficient Liquid Cash
- Suitable Life Insurance Cover
- Medical expense assistance with Health Insurance
3. Asset Allocation To Reduce Risk
Asset allocation means diversifying your investment over different risk classes. Some assets like debt funds have lower risk profiles, while others like equity funds have higher risk profiles. Debt funds will be far less impacted by a market downturn than equity funds. Low-risk debt funds can continue to generate positive returns when equity funds are making losses. Portfolio stability will enable you to remain invested and in the long term when the market recovers and makes fresh highs, equity funds will create wealth for you
4. Focus On Long Term And Your Goals
Remember, the important thing is to stay diversified and focused on your long-term goals. When it comes to investing during a downturn, the answer is often not to do something. It is to just stand there (and maybe avoid checking your accounts too much). If anything, you might just get excited about the opportunity to buy investments “on sale” the next time you get paid.
5. Planning Emergency Savings
In an emergency, cash is truly king. No matter how adequate your emergency savings are, you never know how long you might need to cover expenses in the event of a loss of income. It is important to have least 3 – 6 months of expenses in a savings account.The specific amount you decide is best for you and your family will depend on your personal comfort level, the availability of other sources of financial support, and how risky your income is. Regardless of the amount, make sure the money is easily accessible in a savings account or safely secured in your emergency kit. These emergency savings get you through:
- Unexpected loss of income.
- Large unexpected one time expenses.
- Safety net through medical emergencies.
6. Creating Crisis Budget/Spending Plan
This budget eliminates any non-essential spending and drills down to exactly how much you would need for the essentials like food, shelter and transportation. Knowing how much you need to survive will help prevent you from panicking because you know exactly what to cut back on and how long your savings would last.Tracking your spending will help you understand exactly where your money is going so that you can stay on track for your financial goals.
7. Adjusting Lifestyle
Implement the crisis budget and immediately adjust your lifestyle to this new circumstance. Basically, any expense that does not involve the essentials such as food, shelter and transportation should come to a halt. This will help you weather this transitional period.