Navigating troubled waters: How millennials can manage money during a crisis

Saving and investing for rainy days and unforeseen circumstances is one of the foundational tenets of the investment gamut. All investors upon being initiated into the journey of personal finance are told time and again about the necessity of having contingency funds, insurance and long term investments so that they are adequately prepared to tackle unpleasant situations in life.However, money management when a crisis is actually underway is a completely different ball game altogether – you may be prepared for such a situation due to a diligent investment regime followed since before the storm on the horizon. But, the buck doesn’t stop there – you will have to be judicious with your financial resources and continue with a forward-looking approach during difficult times too to ensure that the financial side effects do not linger after you have crossed troubled waters.35-year-old Shriya Singh who runs a digital marketing firm in Pune says, “Being prepared for a difficult situation and actually being in a difficult situation are two very different things. Last year my business hit the doldrums after being battered by COVID-19. A health emergency on the personal front worsened the blow and before long I had landed on slippery ice. All my clients had vanished and I remember feeling an overwhelming sense of anxiety because even though I had been saving and investing diligently for rainy days, I knew things ahead would not be the same for me a while and that my safety net had been considerably weakened.”For millennials, money management during a crisis can be overwhelmingly tricky. This cohort constitutes a sizable chunk of India’s workforce and is at the center of India’s development story. However, money management remains a rough terrain for many millennials – the thrust on the “live in the moment” approach, the ever ascending aspirations fuelled by social media and the widespread acceptance of relying on loans and credit card for trivial purchases to even short term goals, all these push many millennials to remain stuck in a paycheck to paycheck loop. As such battling monetary issues during the time of a crisis, may seem like a daunting challenge for this demographic.The first step towards ensuring financial resilience is to ensure that you are sticking to your budget because in stressful times, sticking to a budget may be a tad more tricky. If need be, you should also revise it and make trimming under various overheads. This would not only help you safeguard yourself from a chain reaction like financial fallout once the current rocky patch has been left behind. More importantly, a strict budgeting policy will prevent you from completely having to forego your existing savings and investments routine for your future goals.During an emergency situation, existing debt liabilities will also have to be tackled carefully. If you have a pile of credit card debt or have been paying EMIs against any loans, you need to factor in a strategy to avoid defaulting on your debts. You can either continue paying EMIs by squeezing your expenses and halting savings and investments for your want-based goals or you can approach your bank for loan restructuring wherein you can request for a moratorium of suspension of EMI payments for a few months or your could renegotiate your interest rates.Preeti Zende, foundee of Apna Dhan Financial Services says, One should focus on curbing expenses and increasing savings in such situations. Every penny saved can help us to get out of the situation faster. Write down each and every expense. Penning down will help you to know where your money is going. Also, postpone any capital intensive purchases for a later time.”During a crisis, maintaining a calm approach towards finances can be difficult. Emotions may run amok and the immediate focus would be on emerging out of the situation with minimal harm. This may push you to either postpone or completely halt investments for your medium and long term goals. Care should be taken to see if you can manage without discontinuing your investments for your most crucial goals such as your child’s education. Singh says, “In such circumstances, a prudent prioritization of your goals can save you from a lot of trouble later on. This has been one of the biggest takeaways for me. If need be, it is better to liquidate your existing investments for goals that can be postponed or are not so important after taking into account the cost of liquidation for dealing with a cash crunch. You could use the liquidated capital to continue investments for your most important goals.”If you are finding it incredibly difficult to set aside money for your investments, SIPs in mutual fund investments can bring in the much needed simplicity that you need. SIPs in liquids funds and short term debt funds can help you maintain liquidity and stability in your portfolio and neither do you need to go through the trouble of accumulating a lumpsum amount for investing as is the case with fixed income instruments. Liquid funds are better options in scenarios like these because equities carry much higher risks and are better suited for the long term. Considering that in a crisis situation, there is no saying as to when you would need extra cash, starting equity investments could be risky because you may end up incurring losses if you have to liquidate your investments suddenly and if the markets happen to be faring poorly then.Zende says, “Of course continuing investing will entirely depend on your situation. For example, investments will have to be pushed to the backburner if you are struggling to make ends meet. In such situations, it makes more sense to liquidate any existing investments you may have made for aspirational purchases such as vacations, a car purchase or buying gadgets.”Action pointsAvoid using your credit card for your expenses and if possible, refrain from availing loans. The extra burden of debt will only add to your existing woes and can create more problems on the financial front.Before making any drastic changes to your financial plan, seek help of your financial advisor. Do not get carried away due to stress or emotions and make decisions in a jiffy.This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.