“There is no education like adversity.” – Benjamin Disraeli.
Who would have thought in their wildest dreams that establishments would be shut, flights would be grounded and trains would be parked in their shed?
On the eve of 16th March 2020, life came to a standstill for many and I wasn’t spared either. Businesses came to a halt. All of a sudden, without warning.
All you had to do to protect yourself from contracting the deadly “Coronavirus” was to sit at home.
We can see this pandemic as a bane and sulk about it.
I would rather like to see it as an opportunity to squeeze out maximum learnings to help me in the longer run and to reflect on my financial behaviour.
When life gives you lemons, why not make lemonade?
You can’t prevent bad things from happening to you, but you can always be prepared for it.
Below are 12 critical money lessons the coronavirus crisis has taught us.
- Emergency Fund is not an Option but a Necessity – The importance of having a Rainy-Day Fund cannot be emphasised more than now. Job Cuts, Pay Loss, Halt of Businesses – they all stress upon the importance of having a contingency plan. The last thing you want is to have to wonder where your next meal is going to come from. If you haven’t already built one, start now. Put aside savings worth at least 3-6 months of expenses. Emergency Funds provide a safety net and peace of mind in times of crisis. It will prevent you from taking costly, easily available loans.
- Insurance is Critical: Many of us have been hit close to home by the coronavirus, and God knows we know the monetary and emotional toll that it comes with. A few have lost their loved ones and many have had to pay unendingly large hospital bills. Not having an insurance can drain your precious savings, force liquidation of essential investments or push you into debt. Avoid these by ensuring that you have adequate life and health insurance cover.
- Your life insurance will cover all your outstanding liabilities and provide financial aid and security to your family, which is dependent on you, in your absence.
- Given the high cost of the COVID-19 test and the treatment/hospitalisation expenses, ensure that you have enough cover with your health insurance. Healthcare costs are going up consistently and you don’t want the added stress of figuring out how to pay bills while being unwell. Ensure that you have a health insurance of your own apart from the one provided by your employer. You don’t want to be burdened with your medical bills in case of a loss of job.
- In addition, prepare your Will and complete your nomination formalities well in time. You don’t want your family to struggle to make the claims.
- Pay yourself First – What will you do if your child meets with an accident and you are looking at enormous medical bills to save his life? You will find a way to save the money. Right? There is always a way to save money. Until Savings are important, one tends to ignore them. There will always be a better car or a weekend getaway. But Need outweighs Want all day every day. Saving is not a mathematical problem but an emotional problem.
Get into a habit of transferring a certain % of your income every month, on the same day as your pay day, out of your Spending Account into a Savings Account. Pay Yourself today to have a safer, more peaceful tomorrow. There are always many avenues to spend money on. Find that one reason to save.
“It’s unfortunate how some people complain about being financially unstable, yet they use their last savings to acquire material things.” ―Edmond Mbiaka
- The importance of Budgeting – Budgeting is a pretty simple concept. Write everything down! As Marie Kondo would say, assign a home to every rupee. Every single month, based on your history and trend, prepare a budget and assign a place to every rupee. Be it Spends to be made on Essentials, or Wants or money that needs to go to Savings. Having a budget will give you a reality check and bring you face to face with your spending habits. Having measured the movement of every single rupee will make it easier to make mindful money decisions. It will be easier to decide what expense to knock off, if possible, and clearly show you the need to increase income. Planning where your money is going is one of the healthiest financial practices.
- Meal Planning and Shopping based on lists – With limited access to items during the lockdown, everyone was forced into planning their meals and their grocery lists. This helped ensure that we bought only the items that we really needed and thus reduced wastage greatly. Following this forced habit, even now when things have opened up, will ensure that every rupee is spent only on the right items and there is minimum to no wastage of food or money.
- Understanding the difference between Need and Want without feeling deprived – Many claim that their monthly budget is so tight that they don’t have any scope for further savings. This lockdown has shown that life can be managed with just essential items. Many expenses are discretionary, but people think they are essential. During this crisis, people have seen that they can live a basic life without any frills or trappings. They will most likely understand that many of the so-called essential expenses can be done away with.
Apply the 72-hour rule before making a purchase for a “Want”. Add the item to your cart but don’t purchase it yet. Wait for 72 hours and if you still feel the “Need” for that item then go ahead and hit checkout. It is most likely that if it is something that you don’t need, you will forget about it after 72 hours. This helps curb impulse shopping. With limited funds in hand, each rupee needs to be spent wisely.
- Explore inexpensive ways of entertainment – A good time doesn’t necessarily mean hitting the most expensive club in town or going for a fancy meal or a luxurious getaway. Covid–19 and its imposed lockdown has helped us discover so many ways of keeping ourselves entertained without having to spend a bomb, and most times for free. Spend time watching a movie with family or a games night or cooking a meal together. There are so many inexpensive ways of having fun. Entertainment without spending big bucks can contribute towards financial freedom and help create a brighter future.
- Diversification of Investments – Did your heart sink when you saw all of your savings go in the red zone because you invested them all in the stock market? Does your heartbeat replicate the movement of the SENSEX? Then don’t put all your money into Equity Mutual Funds. If you need your money to buy a car in the next six months, then don’t invest in a 3-year Fixed Deposit. It is very important to not put all your eggs in one basket. Diversify your portfolio to reduce the risk from the impact of movement in one asset class. Identify your financial goals and set timelines to each of them. Choose an instrument and/or asset class based on this analysis and invest accordingly. Analyse and identify your risk appetite and make appropriate investment choices.
- Open Financial Conversations- In India, conversations around finance are not easily acceptable. Do you know how much your father earns every month or how he manages to pay your fees? In most households, male members take care of the finances and the wives/mothers and children are unaware. It is integral to have open conversations about financial realities in these times of hardships to ensure that everyone is on the same page and working towards achieving a common financial goal.
- Financial Literacy – Financial literacy is the basic knowledge of how to budget, manage debts and track your spending. Most often people are scared to take money matters into their own hands because they doubt their competency. They tend to rely on external help. There is no harm in seeking support where one lacks expertise. However, each individual should be well versed in the various financial resources that can help them in becoming self-sufficient, build good financial plans and bring about financial stability in their lives. Financial illiteracy can lead to bad financial decisions and may even lead to an inescapable vicious cycle of debt.
- Declutter – With so much free time on hand and no use for most items in the overflowing wardrobes, people were faced with the reality of excessive consumerism. The realisation that we own so much more that we actually use or need, emphasised the importance of decluttering, on both the mind and the pocket. Decluttering goes far beyond improving the aesthetics of your home or work space. It’s essential to both your physical and mental well-being. As more things occupy our space, they find a way to seep into our minds and lead to increased stress and anxiety.
Donating or selling unused items makes for extra income and also helps change lifestyle habits to purchasing only what we truly need. Donations serve the purpose of giving things to people who will actually make the most of something rather than it lying unused.
No time is a bad time to improve your money management habits and prepare for the future. If we continue to apply our lessons from the lockdown and learn how to handle our hard-earned money wisely, we can be guaranteed of financial success.
- Finding a second source of income – Most often we assume that our current income will keep flowing in without disruption. Now we are all aware that this is untrue. Future Income is never guaranteed. This places emphasis on reducing dependence on a single source of income. Finding a second source of income is critical to sustain in these tough times when the main source of income is a question mark in itself. Start a side hustle based on your passion or skill. Having multiple sources of income is empowering and the extra money can be used to build wealth. (Fun Fact: This was what led to the birth of this blog).
Jay Leno, host of “The Tonight Show”, thrived on the concept of “Two Income Savings Technique”. From the moment, he entered the working world, he always had two sources of income. He would bank one and spend one. And he made sure to spend the smaller amount. Before Leno’s career took off, he saved the money he earned working at a car dealership and spent the money he made as a comedian. When he started to get a bit famous, the money he was making as a comedian was way more than the money he was making at the car dealership, so he would bank that and spend the car dealership money.
Anyone can employ this strategy – it all starts with creating at least two streams of income, which is a hallmark of the richest, most successful individuals.
“Tell me and I forget, teach me and I may remember, involve me and I learn. – Benjamin Franklin