HNE Staff A year after COVID-19 was first detected, how are you doing financially? The novel coronavirus cost millions of Americans their jobs, causing people to be in dire financial straits that even government grants could not relieve. The pandemic has taught us how important saving money is, among other financial lessons.
Here are 10 of the most impactful financial lessons everyone should learn from the pandemic:
1. Start an emergency fund
While some people can still work throughout the pandemic, others are not as lucky after being laid off from their work. The termination might not hurt as much if they have prepared an emergency fund to cushion them while they look for another job. Unfortunately, not everyone has an emergency fund.
Those who don’t have savings they can dip into during unemployment usually end up falling into debt, straining their finances further.
An emergency fund is meant to be worth three to six months of the cost of living expenses. If you can stretch it to cover a year’s worth of expenses for the rent or mortgage, grocery expenses, utilities, and other important costs, the better.
COVID-19 should have taught everyone how unpredictable real emergencies can be. No one could have predicted that the country would have restricted movement outdoors due to a virus, lose millions of lives, and suffer from an economic crisis due to a year-long pandemic.
Start as early as you can, no matter how small your initial emergency fund might be. Cut a portion of your salary and save it right away. This is much better than relying on your credit cards to tide you over until you overcome the emergency.
2. Diversify your investments
The pandemic hit the tourism and airline industries hard, resulting in thousands of employees getting laid off. However, other investments are doing well or were quick to recover from the impact of the pandemic. These include e-Commerce stocks such as Amazon and Shopify, video game companies such as Electronic Arts, home improvement businesses like Home Depot, and more. It is important to put your investments in different types of stocks, such as mutual funds, to reduce the risk of losing all of your investments if a single economic event hits the market.
3. Pay off your debts
If you’re merely counting on a paycheck to pay off your debts, it can put you in a difficult situation, and more so if there is an economic crisis or emergency expense. Don’t put yourself in debt if you can’t repay it on time. During a crisis such as this COVID-19 pandemic, it makes sense to prioritize your basic needs instead of putting yourself in more debt. You can pay off your existing debt by refinancing your mortgage or talking with the bank to lower the monthly payments and interest.
Even before a crisis hits, it’s safer to have debts only at a minimum, at an amount that you can afford to repay every month without ruining your finances.
4. Invest in insurance
The pandemic has shown just how vulnerable your health can be and how expensive it is to get sick. Even if you’re covered by insurance from your employer, you might also want to take out insurance on your own. You might want to look for a basic life insurance policy that will provide your beneficiaries with a death benefit in case something happens to you, be it due to the cause of the pandemic or not.
If you have existing insurance, check what your insurance policy covers and what it doesn’t. Make sure your policy can still give you what you need, not a smaller or bigger one. You might even consider asking a competitor for help if they offer lower premiums for the same coverage.
5. Live as simply as you can
Assess your spending habits and stick only to spending on the essential things. Try to cook at home more to minimize expenses on take-outs. Fix things instead of throwing them away and buying new ones. If you force yourself to live a simple life, you might find the more resourceful and talented part of yourself that will help you cut down on the expensive lifestyle.
6. Pay your bills first
If the going gets financially tough, learn to prioritize. Pay off critical bills, such as groceries and rent. You might want to negotiate with the car loan lender so you can change the terms if you can until it’s possible to pay them off. Sort through what bills need to be paid now and what can be delayed for later.
7. Establish a budget and stick to it
Start creating a budget by listing down your monthly bills and provide a budget for each. Consider your current situation to establish that budget. If you’re mostly staying at home, you might be able to reduce your gas expense and redirect the funds to investments, emergency funds, or insurance premiums. It can be a struggle to follow that budget. For instance, if you go grocery shopping, make a list of what you need at home and buy these things alone.
8. Control your spending
Before the pandemic, you might be used to spending on a few luxuries in life, such as a weekly visit to the salon, a special bottle of wine during special occasions, and even regular dine-ins or take-outs if you can’t cook. However, things have changed and if your finances are taking a hit, it might be high time to reassess your current lifestyle and change it. Even if your income grew, it doesn’t mean that your lifestyle should rise as well. Do your best to keep your spending to a minimum, around 20 percent, and set aside the rest.
9. Find a second job
The pandemic has proven that there is no such thing as job security. Airline companies and tourism-related businesses have suffered alarming losses. If you have been laid off or received a pay cut, you can augment your income by looking for a second job or a side business. Look for one that can help you diversify your livelihood.
10. Involve your family in making better financial decisions
Even if you still have young kids, show them how the entire family is coping with the pandemic’s financial difficulties. Explain to them why they have to buy fewer toys, cook at home more, and reduce the overall household expenses. Let them help with the bills if they can. Make the financial challenges caused by this pandemic a turning point for everyone.
Conclusion
Being prepared helps reduce the negative impact of a financial crisis. From now on, do things that will make your finances crisis-proof. Improve your financial plans and your ability to discipline yourself to follow these plans. Only then will you be better equipped to handle the unpredictability of the future.
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