Money Lessons You Should Learn from COVID19
Monetary issues are not a new thing. Even before the outbreak of the COVID19 pandemic, people had been struggling to manage their finances. When people are asked why they are running out of money, they often blame low income and rising living costs. However, monetary issues are not causing tension to people with low income only. People with high incomes are also facing financial problems, and this situation became conspicuous when you were put under the lockdown.
When you had no cash coming in, you had to dip into your savings, and unfortunately, most of them had no enough savings. Although financial experts suggest you have a six-month worth of savings, hardly any of you can successfully have such a size of savings. Monetary issues are an indispensable part of life. No matter how much you earn, you cannot escape financial hardships. COVID19 pandemic has taught the lesson that you should have enough savings to withstand financial problems whenever they pop up.
Although the lockdown has been lifted and life is gradually getting back to the track, you will still have to rely on your savings because cash may not be flowing at the same level as before the pandemic. As you know that life can throw a curveball at any time, you must brace yourself for it. Here are some money lessons you must learn from the current situation.
Build an emergency fund
You can come across financial problems at any time. You may lose your job, or you may have a medical emergency. Having an emergency cushion can help you deal with such situations. When you were put under the lockdown, most of the people had to lose their jobs. Only those people could survive that period who had enough savings to meet their regular expenses.
Before you start building an emergency cushion, you should understand that it is different from your savings. Emergency cushion aims to help you tide over when unexpected expenditures pop up, for instance, you need money to have your car repaired, and savings aim to meet planned expenses like building retirement funds, saving money for a holiday trip.
Of course, you do not have to stop setting aside money for your long-term goals, but at the same time, you should stash away cash for unforeseen expenses. If you do not have a high income, you can start by setting aside 10% of your gross salary every month. Of course, it will take some time, but you can build a lot of emergency savings if you stick to your goals.
A Loan is not always the solution
One of the significant reasons for not being worried about financial problems is easy accessibility to loans. In times gone by, it was hard to take out a loan because of too much formality, but since FinTech, everybody in need of money can apply for a loan by simply filling out an application form online.
Direct lenders have become lenient with lending money to help you tide over when you are running out of money. It does not mean that you will borrow money even if it is not necessary. For instance, the ideal situation for taking out loans for unemployed is when you have lost your job and do not have enough savings to meet your regular expenses.
However, if you are borrowing money despite having enough savings just because you want to buy a new smartphone, this will hit your finances in the long run. Make sure that you do not borrow money unless it is an emergency. The best approach to handle this situation is you should differentiate wants from needs.
You should have a diversified investment portfolio
Another lesson you must learn this time is you should have a diversified investment portfolio. There is no denying that stocks are more profitable than bonds. If you want to build your wealth quickly, you should invest in stocks as they yield the right amount of dividends, but the stock market is extremely volatile. Hence, it is not possible to generate profits when the economic conditions are doom.
As the pandemic COVID19 broke out, the stock market fluctuated, and most of the investors ended up blocking their money, and some of them had to sell at a loss. During this period, bond lovers have been in a favorable condition more than stock investors.
This indicates that you should invest in all types of investment. Even though stocks yield the right amount of dividends, they cannot be better than other investments in every situation. A diversified investment portfolio means investing in different types of investments. Experts suggest that you should not put all eggs in one basket.
If you throw all of your money into one type of investment, you will lose at once as the market fluctuates. However, make sure that all investments move independently so that not all your investments get affected if the market goes through instability.
Financial problems will never stop chasing people. You should handle your finances carefully. A good rule of thumb is to spend when is necessary and build an emergency cushion. If you want to stay on top of your finances, you should make a budget. Keep tabs on your spending to ensure that you do not overspend. The most common reason for being out of money is overspending that you can avoid with the help of budgeting.