6 Critical Money Lessons COVID-19 Has Taught Us
COVID-19
has undoubtedly impacted us all. I don’t think anyone could’ve possibly
foreseen a global pandemic shattering virtually every notion we had of what
normal felt like in such a short period of time. Many of us were not
ready.
In the first half of the year, COVID-19 has challenged the very nature of
our jobs, drastically altered our lives and lifestyles, and severely dented
our personal finances and job prospects.
The big question now is: what does ‘normal’ look like in the second half of
2020 and beyond?
Like everything in life, every challenge and every hardship is a lesson to be
learned. The lessons we had to learn is the importance of financial
preparedness to be able to take on any adverse eventuality effectively.
Jaco Prinsloo, Certified Financial Planner at Alexander Forbes, disusses a few
critical money lessons the coronavirus crisis has taught us. My hope with
today’s observations is that you can use them to regain control of your
current and future financial outcomes.
Lesson 1: Debt can be scary
There are few things scarier than losing your income while having debts to pay
at the end of the month - a position many South Africans found themselves in.
In a situation like this, start by asking for assistance from your creditors
and engage with them to work on a repayment plan. Being proactive about this
will help you negotiate better payment terms and protect your credit record.
Take advantage of the current low interest rates to pay off your debt as
quickly as possible to avoid finding yourself in this situation again.
Lesson 2: The importance of an emergency fund
You never know when you might have an emergency or lose your income, and
Covid-19 is the perfect example of why everyone needs emergency savings. If
you do not already have an emergency fund, start by setting up a monthly debit
order that automatically allocates funds to a low cost, easily accessible
investment account. You can begin by saving whatever you can afford with the
aim to build it up to three to six months' worth of living expenses.
Lesson 3: Staying the course
The first few months of 2020 reminded us that markets don't always go up.
Seeing your hard earned savings going down with the stock market is very
frightening, but don’t be tempted to lock in your losses by withdrawing at the
bottom. The markets are on their way to recovery and the rollercoaster ride is
an essential reminder to investors not to try time the market and about the
importance of sticking to your long term investment goals.
Lesson 4: The importance of living within your means
Living below your means is like a lot like eating healthy - you know will have
to give up a few things and that it's going to be hard. You can find a balance
of enjoying life while living below your means by following a financial plan.
Set out how much you need for essential expenses like bills and debt
repayments, saving for the future and spending on things you enjoy. You might
need to give up a few luxuries and save for big-ticket items. Still, all the
luxuries in the world can't make up for the peace of mind financial freedom
brings.
Lesson 5: The importance of being covered
While fit and healthy, it's easy to question the importance of your medical
aid and insurance policies. A health crisis is a good reminder of the
importance of being able to afford private health care and having cover in
place to protect you and your family. If you find you are unable to pay
your premiums, or you downgrade your plan, make sure you have sufficient funds
available to pay for costs not covered by your medical aid. Your premiums
should not be your primary consideration when choosing a medical aid or
personal cover, as the benefits always outweigh the costs.
Lesson 6: Have professional support
At the start of 2020 most financial plans did not account for a virus and the
economic impact of lockdown. But when your financial plan goes out of the
window, get professional help. Building a relationship with a financial
adviser is one of the best investments you can make. Having someone to help
you navigate the complex and sometimes frightening world of finances can make
your journey a lot less bumpy and more enjoyable. Find someone you trust and
can rely on for support during challenging times.
Covid-19 caught all of us off guard, and we don't know when something like
this might happen again. To ensure you are ready for whatever life throws at
you next, start preparing today by settling your debt, living below your means
and saving as much as you can.
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