The COVID-19 Pandemic has dramatically affected the social and financial lives of people. Many businesses have been impacted, resulting in reduced salaries and even furloughing employees as uncertainty continues to grow. The pandemic has taught several lessons about personal finances that they can adapt to when facing an economic downturn. Here are five personal finance lessons from the COVID-19 pandemic:
1.) An emergency fund is essential because you can lose income abruptly
The first lesson that the pandemic has taught us is that our finances are fragile, evidenced by the growing unemployment. Most people have lost their sources of income, which further stresses the need to have an emergency fund. With the pandemic realities, those who still have income have realized the need to save more every month.
2.) We need to cut on nonessential spending
The pandemic has pushed people to cut their spending, and even the government labeled some businesses essential and others labeled non-essential services. With people spending more time quarantined, it is crucial to review your spending and adjust your financial habits. People have suspended various projects they have been doing, and considering the uncertainty, it is vital to be extra careful and only spend in essential needs like food. Some of the financial and spending strategies you put in place now might be useful, even post COVID-19.
3.) Learn how to avoid too much debt
You may find it easy to borrow money, but that should not mean you have to. The COVID-19 pandemic has taught us a hard lesson that when you owe less, the more options and flexibility you have. It is an important lesson one should keep in mind in managing personal finances, even post COVID-19. Currently, there are government programs, one can take advantage of to stay afloat, but after the pandemic focuses on maintaining your debt to a minimum.
4.) Investing for your retirement
Although most people have cut on discretionary spending during the pandemic, this could be an opportunity for them to consider starting to invest for retirement, especially young folks. People have changed habits like hanging out during weekends, travel, and even drinking, and for some, they will embrace these changes going forward. The money saved from cutting one spending can be invested in something like stocks or bond mutual funds. Should calamity strike in the future, these could be very helpful.
5.) Sometimes there are opportunities in the height of a downturn
Although it is typically unlikely that there is a silver lining during an economic downturn, it has been there in terms of low-interest rates. It is not clear how the pandemic will affect the housing market, but people are taking advantage of the low rates to refinance their mortgages. There is an opportunity, and even first-time homebuyers are taking advantage of the rates and non-conventional loan types, allowing for a low down payment to realize the dream of having a home.