4 Biggest Personal Finance learnings during Covid-19 pandemic
History tell us that best learnings have evolved during crisis. There cannot be better example than what we continue to learn since last six months during Covid-19 pandemic. It has affected everyone regardless of who you are, where you live and what you do. Undoubtedly, the pandemic went on to hurt financial situation of almost everyone and we know that the recovery will be slow and gradual. It would be wrong on our part to think that such scenario may not happen in future. The right thing to do is to take up the learnings on personal finance and adapt it at your end, while things take its time to improve.
To ensure in future we are in better control of our financial life and it get less impacted during crisis, here are few learnings that you can implement.
- Place a safety net of contingency fund
- Adequate medical and life cover for yourself and your family
- Better organized savings and investments
- Budgeting & prioritizing expenses
Safety net of contingency fund
The monthly income that you earn can get paused or reduced or may not grow in near future, it has happened during pandemic and it can happen in future as well. Having a contingency fund in place irrespective of your income is the first and probably the biggest learning. The strategy to keep aside minimum six months of mandatory expenses in a bank account or liquid funds as contingency fund can be extremely handy at the time of need. More importantly it adds to the peace of mind during tough times. These funds will be available for your income takes a hit. The need for contingency fund can depend on your experience during the current pandemic and your financial strength.
Have sufficient cover
Never before the need to have adequate insurance in place was felt by those who suffered from Covid-19 and those who are safe. This pandemic has made anyone potential of contacting the illness because of the way it can spread. It also highlights the risk that we carry if we are under insured. Adequate medical (health) insurance ensures you will not compromise your or your healthcare in future. Else, it either results in you losing your savings or compromising on healthcare. While, most of us are fortunate to fight the pandemic every day, there are those who unfortunately lost this fight. Among them are breadwinners for families and their emotional loss can never be replaced, however the financial loss can be replaced with proper life insurance. Hence, you may also review your current insurance cover and optimize it to ensure you and your family doesn’t suffer financial losses in future.
Right Savings & Investing
During recent crisis liquid savings and investments proved helpful for those who faced difficulties. From liquidity perspective there are two kind of investments in any portfolio, ones that can be liquidated easily and the others that have lock-in or less liquid in nature. It is good to have a right mix of liquid and locked-in investments in your portfolio, for you to liquidate some investment in case of any need. Else you may have money at the time of need but will not be able to use it at that time, if you have most of your savings and investment in less liquid options. Also, loans hurt your personal finance the most, particularly personal loans. Avoiding personal loans or repaying them quickly is another learning. Lot of people with loans had to opt for moratorium which is deferred payment because they had to take care of their regular expenses from their current income and savings.
Budgeting & Prioritizing Expenses
Those who had many random expenses and didn’t had proper budget in place have been hit hard during pandemic. You can have a proper budget in place and plan your expenses accordingly in future. Mandatory expenses such as food, medical and child related expenses can be our priority, whereas lifestyle expenses can be relooked. The idea is not to do away with your leisure time, but to have a proper budget for that as well. This learning will ensure that you are in better control of your expenses. Your credit card statement of last six months is your evidence, if you control your expenses well you have the capabilities to budget and prioritize your spending.
Lot of valuable learnings are born during crisis and uncertain situation. The current situation will get better over, just like all other challenges we have faced in past. When things become normal, how we implement the above learnings in our personal finance will define, how better we work on our financial objectives and sail through the challenges like Covid-19 as well.