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This year has challenged businesses and our personal finances. Job loss and diminished profits will affect the next couple of years (maybe more for some) and recovery is crucial. Of course, this is not the first economic downturn we’ve faced but it’s certainly significant because it’s on a global scale.
Furthermore, the changes brought about by the pandemic not only affected people’s finances but there’s also the factor of lifestyle and the general way of how everyone “normally” went about their lives.
Now that we’ve watched this year play out and its end just around the corner, what can we do to position ourselves in a more crisis-ready strategy for our finances?
Here are the financial lessons we’ve learned from Covid 19:
HAVE A COMPREHENSIVE FINANCIAL PLAN
These plans should include:
– Long term and short term financial goals
– Contingency plans
It’s not enough to be able to pay our bills and run a business. Not losing money every month may give the misconception of stability but it’s important to have set goals to work towards a higher level of security.
Be specific about goals such as having both health and life insurance in place before the age of 35 to avoid higher premiums.
Another example would be finding the solution for events like losing 15%, 30%, or 50% of your income. (Hint: Loss of Income insurance may help)
It’s these specific goals that prevent us from being too anxious about sudden events such as this pandemic. Financial goals provide us with better foresight of where the gaps are so we can fill them as quickly as possible.
HAVE 3 TO 6 MONTHS’ WORTH OF EMERGENCY FUND
Save up money that’s worth three to six months before paying off debt. Having this safety net allows us to support ourself during uncertain times like job loss or low sales in business.
Once you start doing this, it’s also good to add two months each year to get to a total of one year’s worth of emergency savings. That will come as a huge advantage when coupled with unemployment insurance because it can further extend to over a year.
FIND MULTIPLE INCOME SOURCES
This doesn’t necessarily mean having two fulltime jobs. But it can help to explore part-time gigs that will not require too much out of our mental bandwidth. Perhaps a hobby could also become profitable. Having an alternative stream of income can be helpful in case we lose employment.
This pandemic has given rise to plenty of virtual work and it’s an opportunity to find an additional source of money to reach our financial goals much faster.
Putting money in low or medium-risk investments is also be worth exploring especially if there’s stagnant money in our savings account.
FINANCIAL STABILITY FIRST, DEBT PAYMENT SECOND
Debt can be negotiable because institutions will have mitigation departments to allow debtors to find workarounds when unable to pay. Banks and other lending institutions also want to be paid back so foreclosure would be counter to them in many cases.
This is why gaining stability is more important to achieve first than paying off debts. A more productive way of looking at this is being debt-free is one of the tools in gaining stability.
One may not have any debts now but if there’s no income coming in, that still puts that person in a stressful position. Having the money to pay for basic living expenses such as food, shelter and clothing are the top priority.
These four lessons apply even during normal circumstances but more so now that we see how a global crisis highlights our financial blindspots.
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