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The COVID-19 pandemic has been an eye-opener for all. It proved how tragically unprepared we have been for emergencies. Here are the top 5 financial lessons this lockdown has taught us.
COVID-19 has taught us important Financial Lessons, such as the importance of emergency savings and the potential downsides of relying too heavily on debt, as we have seen the pandemic's catastrophic impact on human lives. Besides live loss, the pandemic broke the backbone of the global economic system.
It robbed many jobs, cut down salaries, and completely collapsed the economy.
However, with 2020-21 in the rearview mirror, the COVID-19 pandemic has almost come to an end.
While it’s a reason for celebration, the pandemic has taught us some valuable financial lessons – regarding how to live on a budget, how to save money, and most importantly, money management.
It taught people to have a monthly budget and cut down on lifestyle goods consumption.
How COVID-19 Has Altered the Outlook of Money
But before we move on to understand what valuable financial lessons COVID-19 pandemic taught us, we must acknowledge that it has fundamentally changed the way we perceive personal finance.
Due to the health concerns and social distancing norms when all of us scrambled to carry out our day-to-day transactions, digital payment became the most effortless and safest mode, keeping pace with the increasing digitization of financial services.
With the technology advancements, amazing areas of financial services like neobanking, BNPL (buy now pay later), super apps, cryptocurrency, AI-financial advisors, digital lending, and personalized insurance steadily developed and transformed the market.
The easy accessibility and digital payment options have come at a cost. Many people became addicted to online shopping, which led to unplanned and overspending, deepening the financial crisis. Thus, people learned important money lessons in order to survive.
Living Below The Means
It is natural to improve your lifestyle with a growing income. Eating at fine dining restaurants, mid or small-range cafes, opting for gourmet groceries over local produce, and shopping for branded items are okay as long as you can cut back if any emergency arises.
It should not become an added source of stress. This happened during COVID-19 pandemic as it came bearing financial recession. As a result, billions of hard working people have lost their jobs or faced massive salary cuts.
So, it is important to live below your means. Keep luxurious indulgences in check. Live a humble life and find happiness in togetherness.
Have A Cushy Emergency Fund
The first thing we all must acknowledge is that emergencies happen. So, make sure you are prepared for it. Having a cushy emergency fund is like having a backup – insurance for hard times like these.
Unfortunately, those of you who got laid off or had your salary cut during the pandemic, might have already understood its value.
Set aside 5-6 months’ worth of only living expenses in an easy-to-access account. Instead of letting it sit in a savings account, let it grow in a liquid mutual fund.
This way you can manage money in a resourceful way. It will help you be afloat until you come on track.
Start by saving a small amount of money at first. Do not take too much stress. Once you have your corpus ready, divert it into a separate account. Thus, you’ll not feel the urge to use that amount.
Make Sure To Diversify Your Investments
The COVID-19 pandemic has enlightened us about the value of having a diversified portfolio. Investing in different asset classes means having your risks covered as they perform well at different times. So, an investor with a truly diversified portfolio can stay protected from hard times and reap benefits from them.
Here’s how – the value of gold has been stagnant for a very long time before it increased last year onwards. Whereas equities were highly popular and profitable until they crashed during the COVID-19 pandemic and gold gave amazing returns. Now, do you understand?
Based on your risk tolerance, start investing in a systematic investment plan (SIP) to average your expenses. It will help you develop a habit of investing and reap benefits from compounding.
If you want to learn how compounding can help you build wealth, check out our blog on compound interest, which shows how easily you can accumulate Rs. 1,32,860 in a year by saving just Rs 2/day.
If you are a newbie, take help from your trusted financial advisor. He/She will help you understand your goals, investment time, and risk tolerance and plan your investments accordingly.
Cut Down On High-Interest Debts
The lockdown has taught us high-interest debts like credit cards, personal loans, etc, are harmful to your financial health. It is true even during normal days.
The damage it does to someone who has lost his/her job is even more catastrophic. Therefore, it is imperative that you plan and get out of such debts.
If you are using your credit card for your daily spending, then make sure you use the amount you can pay up next month.
Also, make sure to pay the whole bill amount. Keeping outstanding balance piles up your dues and interests rake up.
Get Adequate Health Insurance For You and Your Family
If COVID-19 taught us any financial lesson, it has to be having health insurance. You may have corporate health insurance.
But it is imperative that you get one for yourself and your family for a large amount.
When you lose your employment, you also lose your insurance. So, getting additional health insurance is a must despite having corporate group health insurance.
Health emergencies can happen at any time. With medical expenditure increasing rapidly, it is close to impossible to have a lot of money at your fingertips at all times.
Therefore, having health insurance of up to Rs 5 Lakh for an individual and at least Rs 15-20 Lakh floater for a family of four is a necessity.
We hope this article has been a useful read and you’ve found some important financial lessons that you can implement in your life.
The COVID-19 impact on finances has been an eye-opener. These points are not something new and out of the ordinary. Most of us are well aware of them.
By making some small changes in our lifestyle and spending habits, you can easily become better prepared for any emergencies and increase your savings.