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L.S.D.: Formula to manage money post COVID

June 15, 2020 12:10 IST

We asked you, dear readers, to tell us how you are preparing yourself for the dark economic days ahead.
Sumit Roy, an MBA, shares his learnings and suggestions:

How to manage money

One of the few positive lessons that the lockdown period taught us is the 'necessity to foresee and prepare for the uncertain future.'

As a finance professional, I recommend the LSD (Lifestyle, Savings, Debt) formula.

1. Change your Lifestyle

Time has come to understand one basic thing -- change the lifestyle according to the need.

We seldom realise that it is NOT life, but the lifestyle which causes the problem.

We stick to the lifestyle during our sunny days, even during our rainy days and fail to adopt to the present situation.

Always remember one basic funda of keeping your expense below your income. If your income goes down, bring down your expense too.

2. Increase Savings

I would remain indebted to Warren Buffet for this.

From time immemorial, we learnt this formula that Income - Expense = Savings. Savings was given the least preference over income and expense.

He also gave us this idea of 'Income - Savings = Expense.

Let the savings be the constant factor in the equation, and not expense.

A fixed monthly savings, even at the cost of compromising expense would rescue us during the hard days.

As a thumb rule, minimum 3 to 6 months of expenses should be kept as liquid cash.

3. Do not fall into the Debt Trap

John Adams -- the first vice-president and the second president of the USA -- made this sacrosanct statement in 1826.

'There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.'

Unfortunately, we have taken the above as a compliment, rather than a warning.

In a recent survey, about 69% of Indians confessed that they would be unable to run their family expense if one month's salary is stuck.

The credit goes to EMI (equated monthly instalment). We have forgotten the basic difference between 'necessity, comfort and luxury' because of the so called 'offers' given by different companies.

After all, debt is the privilege of possessing things that actually do not belong to you.

Try to limit your EMI within 15% of your income. In case of home loan or educational loan, 25% should preferably be the benchmark.

Impulsive buying should be a NO NO. Consider EMI as 'Error Made by Impulse.'

Illustration: Uttam Ghosh/Rediff.com


How are you financially preparing for the dark days ahead?

Please share your plans with us at getahead@rediff.co.in. Do share your name, age and profession with us. Please mention MY POST-COVID FINANCIAL PLAN in the subject line.

SUMIT ROY