It is good that Rakhi and Manish have realised well in advance that they need to have a plan in place to manage their finances once Manish’s income stops coming in. The most important thing for them is to budget their expenses. Listing expenses under the heads like necessary, reducible and avoidable, will give them a fair idea of how they can manage with a single income. Some of the expenses that seem essential when both of them are working, such as maintaining two cars, can be cut back on. Some of the discretionary spending can also definitely be avoided.
Since they didn’t get enough time to plan for this unforeseen scenario, they can cut back on some of their expenses and work towards building a corpus to support the household in the interim. This will not only help them create a fund for this emergency, but also help them get used to living with a lower disposable income. They should use this opportunity as a learning and prioritise building an emergency fund for contingencies even after their situation improves. Manish and Rakhi must also work on developing good credit and spending habits by paying off expensive debt, cutting back on credit card usage and avoid using the revolving credit facility, buying only what is essential and looking out for good bargains and offers for their essential expenditures.
While aligning themselves to their new circumstances, there are certain outflows that they must not forego. A low cost term insurance for Manish is another area that they should not neglect. Health insurance is also important, given his old parents’ situation and the current health crisis. Any sizeable expenditure on account of medical treatment must be avoided. Efforts must be made to look for protection in order to conserve their wealth, so that unnecessary financial stress may be avoided.
For Manish, it is not going to be easy to move from being financially independent to being dependent upon his wife’s income. Since he sees himself going back to work, he should use this time to upskill himself.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)