It's been over a year-and-a-half since the first novel coronavirus case was detected. It quickly breached all borders and reached almost every country on the planet. And just when we were making some sense of the crisis at hand, it transformed into a full-blown pandemic, infecting billions and taking the lives of millions. Besides the human loss, it broke the back of the global economic system, robbed many of their jobs, and led to a complete collapse of economic activities. And therefore, humans have drawn many lessons as well.
Here are six lessons we learnt about personal finances:
Emergency fund: While the pandemic is surely not an everyday occurrence, it can happen and therefore we must have an emergency fund for at least two months of our spending. The primary reason is that what if we lost our jobs as many did in the past two years. Hence, this emergency fund will come in handy for the time you are trying to find another job.
Your Employer's health insurance plan may not be enough: The reason we say it is because what if the employer releases you as part of the layoffs forced by something like the COVID-19 pandemic. Always, always have your health plan too. An absence of it may result in further financial and health troubles for you as well as your family members. It's great that your employers cover you under a health plan, but one of your own is always better.
COVID compels us to think about saving more: We may not have wanted to this before, but something as extreme as this pandemic and the COVID-induced lockdown has compelled us to save a little more than what we were. The pandemic has already forced us to cut down on extra expenses such as regular shopping, movies, concerts, etc. Save this money. While we will get back to doing all we did before the pandemic, it's important to keep in mind that there's no guarantee that a crisis of this magnitude can't strike us again. Therefore, spend but save as well.
Diversified investments: No denying that times such as the one we are in right now, require us to be careful when it comes to investing and deciding how much do it. However, if you are an investor with a diverse portfolio, chances are you will not just scrape through the crisis but also even take advantage of it. How much you invest in each asset should be decided based on the risk you want to take and not on the basis of returns it's currently generating.
Avoid high-interest rate debt: At no cost should you opt for any personal loan or credit plan, especially in times such as that of COVID-19, with a high interest rate. Imagine losing a job in the middle of the pandemic and yet having to pay regular instalments. High-interest rate plans are not the best options even when you have a regular income, let alone for the time you don't have a job. If you are using a credit card, spend only as much as you can pay.
Living on a budget: We had a regular income and we never thought we would be faced with a pandemic. But this pandemic has also taught us that we could live on a budget and thereby even save more. Those who were always following a planned budget for their monthly expenses could adapt easily as compared to those who believed in just earning and spending. Therefore, plan your expenses and be prepared for the unforeseen.