Make penny-pinching a virtue when dealing with financial stress

4 MinsMay 04, 2020

The COVID-19 pandemic has hit the reset button on the world economy. The slowdown means higher chances of job losses or pay cuts. In such a situation, it is prudent to take a look at your expenses and see what you can curtail to match a reduced income level. This will help you deal with the financial impact of the pandemic. In the best-case scenario, if you remain unaffected, then all your frugality would have achieved is enhanced savings – hardly an unhappy outcome.

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Here are some tips on how you can stretch a rupee:

1. Involve the Whole Family: This crisis is an excellent opportunity to involve the whole family, including children in discussions about finances and drawing up a budget. The added advantage of such an initiative is that this way, you can start teaching your children valuable lessons about money.

2. Make a Crisis Budget: You may have been managing your expenses comfortably at your current income level. But how would you be able to cope if the family income was halved? Treat this as a starting point to plan. The trick is to look at each expense at a granular level and divide them into essential, (groceries, utility bills, medicines among others), not-so-essential, say a gym membership (after the lockdown is lifted) and splurge (eating out). Focus on the essentials and then go down the list to the others. Chat with your children and ensure that they know that splurging happens only on special occasions.

3. Kitchen treasures: Even while buying groceries, there are several ways in which you can save money. The internet is full of such tips. Check them out. A simple trick is to clean out the fridge and cupboards once a month. You will be surprised by how much stuff is leftover which you can use. Organize storage properly so that you know what is stocked where so that you don't buy unnecessarily. Plan your meals for at least a week and buy groceries accordingly.

4. Car-pool is cool: Before the lockdown, you may have been commuting to work in your car or two-wheeler. But with a reduced income, it might make sense to use public transport or opting for car-pooling. You can team up with colleagues who stay close to you or with friends nearby who work in the same place as you. There are apps that let you car pool with others. It will be good not just for your wallet, but the environment as well.

5. Subscriptions to OTT services: While a good broadband connection is an essential expense, figure out which Over-the-Top (OTT) services you want to subscribe to. Several of them offer family subscriptions at discounted rates. Check these out to save costs.

6. Manage debt smartly: Use this scheme to conserve cash till May 31 by deferring your EMIs. Yes, you will have to pay the interest that accrues during your moratorium period, and your pending principal amount might go up slightly, but you will have cash with you right now. If you have multiple loans, try and pay off the more expensive ones first such as credit card outstanding or personal loans.

[Also Read: Moratorium - What it means and its impact]

7. Re-classify your financial goals: Given the uncertainty about how long economic recovery might take, it might be a good idea to divide your financial goals into 'Must Have' and 'Good to Have'. For example, saving and investing for your child's education is a 'Must Have' goal. A foreign holiday can only be 'Good to Have'. Prioritize saving and investments towards the 'Must Have' goals.

8. Start an Emergency Fund: As soon as your financial situation improves, start an Emergency Fund to take care of essential expenses for three to six months. Other than your monthly household expenses, it should also cover healthcare costs, insurance payments and loan EMIs. Use the Axis Bank’s Emergency Fund Calculator to know how much you need to set aside. With the cooperation of the whole family, careful planning and execution, it is possible to overcome the financial impact of the COVID-19 crisis. Remember in this journey; you will find Axis Bank to be your partner "Dil Se".

Disclaimer: This article has been authored by The Source, a Mumbai-based content creation, and curation firm. Axis Bank does not influence the views of the author in any way. Axis Bank and The Source shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.