6 Personal Finance Lessons that Covid-19 crisis teach us12 June, 2020
By Antonet Fehmi
To cope up with change and uncertainty is something that pushes every human being out of their bean bags and leaves them sweating until they find enough strength to face the situation, adjust and learn from it. 2020 has brought the world to its knees with the Covid-19 global pandemic causing the stock market crash which could lead to an inevitable recession and chances of job losses for many. While there is a lockdown in most of the countries, people have taken this difficult time to reflect on things. We always learn from life when it puts us in a difficult path. Like they say, "You can't prevent bad things from happening to you, but you can always be prepared for it." Let us look at some of the personal-finance lessons that the pandemic has taught us
1. Financial literacy is a necessity
Another year has passed, and I still have not used the Pythagoras Theorem in real life. As schools and colleges focus on marks and grades, it has failed to bring its students the knowledge of the real necessities of life, like mental wellness and financial literacy. Financial literacy is the basic knowledge on how to budget, manage debts and track your spending. Financial illiteracy can lead to bad financial decisions and may even lead to an inescapable vicious cycle of debt. With the ease of accessibility of knowledge in the palm of our hands, it is upon us to keep ourselves to be well equipped on the various financial resources that can help ourselves to become self-sufficient, bring about financial stability in our lives and help build good financial plans.
A budget is telling your money where to go instead of wondering where it wentJohn Maxwell
Money is the prerequisite for the basic physiological needs such as food, water, shelter, and clothing. Management of money thus plays a vital role in our lives. It is so easy to be entangled in the webs of life that we often become ignorant of the bigger picture. Budgeting is one of the healthiest financial practices that can help control your spending, identify between good and bad spending, increase your savings, plan for your debt payments, and bring about good money habits. Budgeting also adds as an additional benefit to help you sail through the rough seas of uncertainty.
3. Do not over-borrow or over-spend
In this time of crisis, it is so easy for us to find alternatives and borrow money, to protect ourselves and our loved ones by overspending it on emergency commodities. Usage of credit cards must be minimized, to avoid high-interest rates charged by the cards. While using credit cards and loans, it is crucial to keep in mind whether you will be able to pay back the money. Deferring payments will only lead to additional stress and a loss in your credit score which will deny you the usage of other financial resources for your future.
4. Health is wealth
The number of cases of Covid-19 is increasing at a rapid phase and there has been no successful vaccine has been found. With the world almost on the verge of reopening and living with the virus, it has made people realize the importance of health insurance. Though medical treatments have advanced, the cost is often expensive, and covering up the medical bills is often strenuous and can lead to a huge hole in our pockets. Health insurance helps cover up the expenses for your family and yourself without hurting your savings, emergency funds and protects from inflation rates. It is also better to have your own health insurance even if your employer provides one, as it will be of no use in the event of a job loss.
5. Emergency funds
With job loss and pay cuts in the cards, it is essential to have a contingency plan. Emergency funds give you a breathing room and help you not to get bogged down on situations that you cannot have a control of. A bare minimum of 3-6 months of expenses should be set aside as emergency funds. This can help support you in times of financial upheavals. It can be done by setting aside 2 months of expenses for every year. Lowering the bills and cutting down on expenses can also help to contribute to the funds. It is better to keep your emergency fund in a safe and easily accessible place such as the savings account.
6. Diversify your investments
Investment always comes with risk. Putting the eggs in different baskets can help mitigate your risk, as compared to putting them all in one basket. Covid-19 has caused a massive stock market volatility and brought losses to many investors, while the gold market is giving in good returns. While one asset performs well, the other may not perform well. Hence it is better to diversify your investment portfolio and have a mix of assets to decrease volatility.