Resetting priorities, realigning finances, rethinking careers…
Year 2020 will not be remembered positively as the Coronavirus Pandemic really caught most of us off-guard! The ongoing pandemic has not just endangered millions of lives across the world. It also dealt an enormous blow to the global economy to a degree that a recession looks unavoidable.
Tough times, like the one we currently find ourselves in, are great teachers too. They teach us things like the importance of financial awareness to be able to tackle any adverse possibility effectively.
As lock-down restrictions ease and life beginning to feel ‘normal’, a few financial lessons have been learnt along the way.
It is not impossible to cut back
Fewer trips to the supermarket have shown many households that they can:
- lower bills by planning meals,
- only buying essentials; and
- switching to cheaper supermarket own brands.
Many have also realised just how much they previously spent on non-essential purchases.
Personally, being forced to cut out takeaway coffees, meals out and socialising events, I have learnt how much I have been spending on these ‘luxuries’. And also how easy it is to continue to live without them in the future and save money.
Gym trips are not the only way to stay fit
Anyone who has turned to online fitness classes like me in recent months, have probably learnt one thing! Keeping in shape does not have to involve expensive gym membership fees.
There are plenty of online workouts on YouTube – plus numerous free mobile apps to help you stay fit. Cycling, walking and running are also easy ways to keep fit.
During lock-down I discovered the wealth of free fitness classes online and developed a passion of running outdoors. By cancelling my gym membership it will save me £540 a year, some money I could put towards a holiday!
Emergency savings are important
Lock-down has probably encouraged consumers to now re-evaluate how they save. It’s safe to say that we should now put more money aside for a rainy day. A good rule of thumb to give yourself a solid financial cushion, is to have three months’ essential outgoings available.
So, if you spend £1,000 a month on mortgage or rent, food, heating bills etc, you should aim for £3,000 in emergency savings. If you lose your job or take a drop in income, it will allow you to support yourself for a few months without having to borrow and go into debt.
So, start building or replenishing your emergency fund before it’s too late. You can do so by
- utilising your declining expenses during the lock-down;
- exercising strict cost-cutting measures; and
- cutting down wasteful spends going ahead.
Spreading your eggs does work
The Covid-19 crisis has unfortunately impacted most investment walks:
- market volatility has wiped off years of profits;
- deposit rates have slumped;
- small savings schemes are offering lower returns; and
- the property sector is experiencing an extreme slowdown.
The lesson is to spread your investments across various asset classes with varying degrees of risks and returns. This will minimise the overall investment risk, and it’s important to stringently align your investments to your risk appetite, financial goals and liquidity requirements. Most importantly, do not discontinue an essential investment without thinking it through. Because, the longer you stay invested, the better are your chances to fetch desired returns.
Never take a loan you cannot afford to pay
Loans, when managed well, are great enablers to fulfill our life’s goals like buying a home or a car. Loans at times could also bail us out of a financial emergency. However, its critical you evaluate your repayment capacity carefully before signing up for any financing facility. An unaffordable loan could not just destroy your finances, but may also lead to a loss of a precious asset.
Down the line, this was cause immense psychological pressure along the way. Repaying an unaffordable loan could get even more challenging despite some short-term relief from the government.
The lesson being, never over-borrow and have a contingency plan to be able to repay your loans in full on time.
The Covid-19 pandemic is causing people to re-learn important financial lessons. Perhaps this time more people will remember this for a lifetime. Because the lesson can prevent significant decline in wealth as well as, reduce stress and burden over the years.
The pandemic has taught us that the quality of our life is not dependent on how much we spend. But instead on defining and prioritising the things that are important to us. Some good financial lessons have also been established by the pandemic-induced economic shutdown. A crisis is a good opportunity to identify any weaknesses and fill any gaps to ensure you have a solid financial escape plan.