Financial planning strategy for uncertain times

Things never go smoothly; we may come across certain ups and downs. Unprecedented events like COVID-19 are a part of market cycle. With the start of the fall in market, we moved from the euphoria phase to fear and further, might also enter recession. This economic cycle controls our financial situation. Hence, it is important to have a strong financial planning strategy in place to control our financial situation to some extent. So, what should be your financial planning strategy? Let's find out.

Liquidity

Firstly, you need to focus on liquidity. At such uncertain times, liquidity is something that plays a vital role. Liquidity ensures that you have an ease of access to your money and are able to support your living with the same. Having an emergency fund in place is a best way to have short-term liquidity. Hence, it is wise to build an emergency fund to take care of your short-term needs in case of loss of your income. You can park emergency corpus in savings bank account or even in short-term bank fixed deposits (FDs).

Risk management

Risk management is another aspect that you need to take care of. You should be well-covered with life and health insurance. These are two basic types of insurances that you need to have. There are various other things such as your financial needs, debt, assets, etc. that should be categorised under life cover. However, you should at least have life insurance cover close to 20 times of your annual income. This is a bare minimum. In case of health insurance, having a family floater (if you are married with kids) would be preferable. How much cover you should take would depend on various factors. But having Rs 10 lakh family floater cover for a family consisting of two adults and one child is the bare minimum. For individual health cover, one should have at least Rs 3 lakh to Rs 5 lakh cover.

Asset allocation & rebalancing

Asset allocation and rebalancing strategy helps you to reduce your risk in investment. As it is rightly said that, never put all your eggs in one basket. Likewise, never put all your money in one asset class. Diversify it among different asset classes. This will help you to contain risk. Not just that, periodic rebalancing would help you to further reduce the risk by resetting to your initial asset allocation. Hence, it is important to allocate your assets wisely and rebalance the same periodically to get better risk-adjusted performance.