6 Personal Finance Lessons To Learn From COVID-19 Pandemic

The COVID-19 epidemic has been the world’s, particularly India’s, most serious catastrophe in many generations. In some way, everyone has been affected by the pandemic. Many people have lost loved ones or have witnessed them suffer from illness. Others may have been affected financially as a result of the pandemic. At the very least, we all experienced huge disruptions in our daily routines. However, there are many essential lessons in personal finance that we learned from the events of this time period.

Have an Emergency Fund

Dealing with unforeseen hazards, such as job loss, business income loss, unanticipated high expenses, and so on, is one of the consequences of any major financial crisis. Even if these dangers do not materialise, the possibility of having to deal with them is terrifying for most middle-class families. The whole point of having an emergency fund is to be able to deal with these risks without having to liquidate your long-term assets. According to financial advisors, you should have an emergency fund that can cover 6 to 12 months of your typical monthly spending in case of an unexpected event. Overnight funds, liquid funds, and ultra-short duration funds are examples of debt mutual fund schemes that are suited for storing emergency funds.

Invest in Financial Assets

Physical assets such as property, real estate, gold jewellery, and so on continue to entice regular Indian households. Despite the fact that the ratio of physical assets in average household savings has decreased over the last decade (source: RBI), many Indian households still have a significant amount of their net worth invested in physical assets. Physical assets can be extremely difficult to sell during a significant crisis, and in extreme cases, they may have to be sold in a distress sale. Furthermore, the sale of tangible goods frequently necessitates face-to-face interactions and takes a long time to accomplish. On the other hand, financial assets are far more liquid. The majority of financial transactions may be completed online. Financial assets are far more valuable in extreme situations, as demonstrated by the COVID-19 disaster.

Do Not Panic

Volatility can be emotionally draining. Nobody wants to see their hard-earned money disappear from their assets. As we observed during the first wave of the COVID-19 epidemic and before that during the Global Financial Crisis of 2008, volatility can be high. However, if you panic and sell, you will lose money in the long run. During a crisis, it is critical to be patient.

Asset Allocation is Your Best Friend in Uncertain Conditions

In different market conditions, there is little or no link between the performance of different asset classes. Diversifying across asset classes reduces downside risk and ensures that your portfolio remains stable over time.

Your asset portfolio should be dictated by your risk tolerance and financial objectives. You should speak with your financial advisor to determine which asset allocation is best for your needs.

Remain Disciplined With Your SIPs

When the market falls, some investors may feel compelled to stop investing. Rupee Cost Averaging allows you to reduce your average cost of the purchase in volatile marketplaces. Regardless of market conditions, you should stick to your SIP schedule.

Have a Will

There has never been a better opportunity to emphasise the importance of having a strong will in every adult. Nobody could have predicted the degree of tragedy that transpired around the world last year. People also don’t like to worry about dying one day, which is why they frequently kick this can down the road. However, one of the most important lessons of Covid-19 is to be prepared for the worst.

It’s crucial for the family you leave behind to understand your preferences concerning your assets and things, whether you’ve amassed a fortune like Tony Hsieh, former CEO of Zappos (who died without a will) or you’re worth $10,000. It’s also a good idea to double-check your beneficiary choices. Whether or whether you have a will, life insurance, a 401(k), or an IRA are legal contracts that will go to the chosen beneficiary. It is common for people to forget to update or change the beneficiaries.

Final Thoughts

COVID-19 has been one of the most serious situations we have ever witnessed. This will not be the last time we are confronted with a crisis. However, the lessons learned from this crisis will aid us in being better equipped to handle future crises and emerge stronger as a result of them. The lessons learned from this crisis are not new, since we have covered them several times in our blog over the last few years, but a crisis of the magnitude of COVID-19 emphasises the importance of these fundamental teachings. You might also talk to your financial advisor about how you can be more prepared for the future.