The COVID-19 pandemic has affected almost every area of our lives. In this year of global turbulence, many have lost months of income or fallen even deeper into debt.
We are coming out of what looks like the other end of the tunnel still feeling the financial impact of COVID-19.
We tend to pay little attention to financial planning until something big happens. And this crisis has made some often-ignored wisdom all the more relevant.
This is an opportunity to recover well and be prepared for what else may come. Dale Carnegie says, “Develop success from failures. Discouragement and failure are two of the surest stepping stones to success.”
So let’s not let this crisis go to waste. Here are 7 lessons to think about:
1. Emergency funds are a must. And bigger is better.
Pre-pandemic, most financial advisers recommended having 3-6 months’ expenses worth of cash, stashed away, in case of emergencies.
That seemed like a big amount to leave just sitting idly in your bank account. But with the crisis lasting as long as it has (and it’s still raging in many parts of the world), we know that 3-6 months is barely enough.
Many individuals and families have had to stretch their emergency funds even further. And if we could go back in time knowing what was to come, we probably would have set up our emergency savings very differently.
The pandemic has also taught us that liquidity is important. Having a wealth of assets is great, but it takes time to liquidate property, especially during emergencies.
The emergency fund rules have been rewritten, and now, knowing what we know, a year’s worth of reserves is the recommended amount.
2. Investments should be diversified.
Diversifying your investment portfolio helps protect against risk.
Investment advisors recommend portfolio diversification because industries and sectors are affected differently by market volatility. Experts advise a mixed portfolio of investments—stocks, index funds, commodities, and metals, among others.
A good mix of short term and long term investments is ideal. Warren Buffet said that “the stock market is designed to transfer money from the active to the patient.” It’s a good idea to study long-term investment strategies because recessions and crises tend to throw short-term investors into a panic.
Markets dip and rise, but those who stay for the long haul profit from waiting.
3. Have several streams of income to stay afloat in rough waters.
The pandemic showed us just how fragile our financial position can be. How easily we can lose our jobs and how income can dry out so suddenly.
In the pandemic, people have embraced the wisdom of opening up several streams of income. Many employees have entered the gig economy to stay afloat. For many full-time employees, the side-hustle is a way to keep money coming in while worrying less about employment changes.
It also helps to keep a healthy professional network and maintain good relationships with colleagues, former colleagues, and bosses. Many times, new opportunities come from our professional networks.
The pandemic in particular has been kind to some industries and harsh to others. The hospitality and tourism industries were hit hard while online gaming businesses boomed.
It’s hard to predict the effects of future crises. It’s important not to lock yourself into one industry. Cultivate the ability to serve various people groups.
Stay flexible in your career. A wise man called Chris Rock once said, “Wealth is not about having a lot of money; it’s about having a lot of options.”
4. Debt is an even heavier weight during a crisis.
“Every time you borrow money, you’re robbing your future self,” Nathan W. Morris once said. This rings even more true during the pandemic. You’ve probably been kicking your past self for taking those loans and buying fun things on credit.
When the income faucet slows down, mortgage bills become heavy as a rock. Consumer credit rises as daily expenses become a struggle. Steven Wright famously said that “bills travel through the mail at twice the speed of checks.” And we feel this all the more in a crisis.
And the more debt we have to pay, the faster our savings get drained.
Make it a goal to eliminate debt and flip it around. The money you are now putting aside regularly for debt payments should one day turn into savings.
5. Health insurance is a must.
Depending on where you live, you will have different health benefits.
Some governments are able to cover the COVID-19 hospitalization and treatment costs of their citizens, as well as expenses from other types of medical conditions.
For those without such benefits, ensure that your wealth is protected from any health issues or crises that may arise. This may mean increasing insurance coverage or applying for health cards.
Make sure you have enough health coverage for hospitalization and critical illnesses. This COVID-19 situation has made this point easier to drive home.
6. Maximize available government benefits whether in crisis or not.
We may tend to dismiss some benefits because we don’t need them at the moment. But living through a crisis helps us appreciate the need to set aside “food for the winter,” as the humble ants are known to do.
It’s a great time to start keeping track of the benefits that are available to you now and in the future.
In many countries, depending on how much your regular contribution is, you receive a certain stipend or allowance upon reaching retirement age.
If you keep track of what’s been allotted to you, you have a better idea of what you will be receiving, and what the gaps are. You can plan for how to fill the gaps with additional savings plans, or increasing your contributions to things like social security and retirement funds.
7. Budget thoughtfully and save aggressively, whether in a pandemic or not.
How many of us regret some things we splurged on before the crisis? Then when money became scarce, our perspective of value shifted, and we gained a better appreciation of what is essential.
When income is abundant or increasing, people tend to spend more and be reckless. Increased income tends to tempt people to upgrade their lifestyles.
Do not be pushed and swayed by the state of the economy or the state of your income flow.
Seasons come and go. There will be times of abundance and times of struggle. Having a budget is essential for spending thoughtfully and saving aggressively, and doing it consistently.
As your income grows, save the excess. Don’t feel compelled to upgrade your lifestyle or commit to more expenses.
Now that COVID-19 has helped us see what is really valuable, consistent budgeting, spending, and saving will keep your finances healthy.
Not only that, financial wisdom helps us live life more meaningfully. “Finance is not merely about making money,” As Robert J. Shiller said. “It’s about achieving our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society.”
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