The coronavirus pandemic altered many aspects of our lives, including employment, family life, and more. The COVID-19 pandemic has also impacted our financial lives.
The consequences are far reaching. Businesses have closed (temporarily or permanently), and many people have lost their jobs without finding new ones. While the unprecedented COVID-19 pandemic gripped the world, one of the essential lessons learned was the importance of properly planning and managing personal finances to secure our financial future. It also caused us to rethink our finances.
Here are some financial lessons we’ve all learned the hard way during the COVID-19 pandemic.
1. You should prioritize an emergency fund
You don’t want to face unanticipated expenses or a crisis during a pandemic. During this time, finding yourself unable to meet expenses is heartbreaking. Unfortunately, that is precisely what is most likely to happen if you don’t have an emergency fund. Lenders are hesitant to lend money to people in desperate need. They don’t want to risk granting you a loan when your financial situation is precarious, and your default possibilities are high.
Having an emergency fund ensures you have the funds you need without seeking a lender for taking out a loan.
You may wonder how much to save in an emergency fund?
Well, everyone’s financial position is unique. It is recommended to save at least a few months’ living expenses in an emergency savings account. You can keep three to six months’ worth of spending in cash on hand as well.
2. Budgeting helps to understand your cash flow and manage spending
Budgeting is more vital than ever during the pandemic’s economic downgrade. You should make a plan and stick to it using a budget.
If the epidemic has reduced your income and you want to save money, budgeting is an effortless way to help.
Make a list of your spending and categorize them into requirements and wants. Food and shelter are examples of necessity. Wants aren’t necessary. They make life more delightful, but you can live without them if you have to. But, you can not eliminate your “needs”. So, keep your “needs” and “wants” in mind while making a budget.
You can use a free budgeting app to create your budget. Don’t forget to make necessary changes to the budget. To get the best results of a budget, reduce your expenses.
Choose generic brands instead of name brands.
Instead of more expensive meals, opt for more affordable whole foods.
Once you start following a budget, you can easily understand where your money is going and get a grip on your extra expenses. Keeping track of how much money comes in and goes out will help you get back on track.
You can link a savings plan to goals such as a retirement plan, a child’s schooling plan, or even an emergency fund.
You may be in good shape if you are meeting the needs of reasonable ambitions.
If you aren’t, you may need to focus on your spending and saving habits.
3. High-interest credit card debts are harmful
Your personal finances may have taken a hit during the pandemic. Living paycheck to paycheck may have made matters worse for many people affected by the recent economic crisis.
This is especially true if you have no choice but to rely on high-interest credit cards to get by. It’s surprising how quickly excessive spending can deplete our cash.
The lesson here is to stay out of that vulnerable situation in the first place. It’s time to rethink your financial strategy. Also, try to pay off your credit cards as soon as possible.
4. Keeping a close eye on your credit score and report is crucial
Credit card applications, loan applications, and late payments can all impact your credit score. And you may not understand how important your credit score and history are until a problem occurs.
A bad credit score or red flags on your credit report can create a problem when you need cash fast. It also impacts the rate of interest you will pay.
During the COVID-19 pandemic, lenders have taken steps to assist borrowers. It’s also simple and free to keep track of your credit score. You can get a free copy of your credit report from AnnualCreditReport.com once a year and check it for accuracy.
5. Taking out cash advances is a big mistake
The pandemic taught us to live with what we need.
We can live with fewer materials in our lives. Taking out payday loans to fulfill unnecessary needs can only drag us down. Payday loan debt can also be a burden.
If you want to get rid of them, you can go for payday loan consolidation. You need to take out a consolidation loan with a low interest rate to consolidate your loans. You can also seek a professional debt repayment option to get rid of your payday loan debt.
6. Ignoring your health can cost you dearly
After months of dealing with the COVID-19 pandemic, there is no doubt that we should prioritize health.
Improving nutrition and fitness habits can help you feel better, lose weight, and improve your health in significant ways.
It can help you avoid chronic health disorders like diabetes, high blood pressure, and heart disease. Boost your immune system to fight infection.
It may also help to clear the mind, treat moderate anxiety or sadness, and reduce tension.
7. Diversifying investments are key
Diversifying your investments across several asset classes – equity, debt, gold, real estate, etc–is an essential element of effective investing.
This not only helps to limit risk, but it also helps to maximize returns.
When choosing financial instruments, it’s also essential to keep the investment term in mind. Equities, for example, are a good illustration. Also, it is essential to regularly rebalance your portfolio. Many investors who didn’t rebalance and harvest gains regularly are more exposed to market volatility than they had expected.
As a result, many people suffered more severe losses than they would have otherwise.
8. Investing in health and life insurance is a basic need
The pandemic has shown that life is uncertain. It has also demonstrated how unpredictable life can be.
As a result, ensuring the family’s financial security is a primary responsibility.
Investment in a life insurance plan should be made to provide enough coverage for the family, i.e., an amount that would keep the family financially secure if the breadwinner died.
Given the rise in lifestyle-related diseases and rising healthcare expenditures, family health insurance is also necessary. Because good health is an essential requirement, these expenditures cannot be avoided or negotiated.
People recognize the importance of financial wellness as part of their overall health more than ever before.
If you’re dealing with debt due to the epidemic, understand that recovery may take time.
However, increasing your ability to adapt to stress and change will aid you in navigating life and safeguarding your financial future.
Now is the time to prepare. Focus on staying within your budget, having a healthy lifestyle, and becoming a proactive planner.
Finally, even if COVID-19 is a distant memory, resist getting overconfident about your health and financial well-being.