Halfway into the COVID-19 pandemic and the International Monetary Fund has already termed the inevitable economic fallout to be “the worst recession” since the Great Depression of the 1930s. Every country is locked in a tussle between fending off the virus and minimizing the damage to its economy.

Emerging countries like India cannot prolonged lockdowns, given its current economic state, but there aren’t many other viable options on the table so far. Like any other recession in history, we are now seeing widespread pay cuts, double-figure unemployment rates, struggling businesses, and blanket freeze of new hiring activity.

But, just like any other recession, the current situation is also bringing a few valuable financial lessons for all of us. Amid the challenges, here are some lessons we should remember:

10 Financial Lessons to Learn from the COVID-19 Pandemic

  • Build an emergency fund before investing

Investments are great ways to inflate your cash and save for the future, but not all options provide instant liquidity during unforeseen emergencies. Financial crises are times when things go haywire with no predictability or stability. Without appropriate cushioning, you might quickly find yourself unemployed and bankrupt.

This is where emergency funds are so vital as they can buy you some time for you to get back up on your feet again, even if your sources of income dry up. The current COVID-19 situation is likely to last for the next few months. So, as a lesson for the future, be sure to save up to six months’ worth of your fixed expenses into an emergency fund. During the next emergency, you will know that you can survive for six months no matter what.



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  • Consumer credit should be minimal in your portfolio

There are people who have committed up to 50%, or more, of their monthly income to repaying loan EMIs. However, faced with the prospect of job loss or significant pay cuts, it will get tough to repay all EMIs on time. Sure, the RBI moratorium on loans has given temporary relief, but it will surely not solve the challenge. In 2019, India was already going through its cyclic economic slowdown. The entire credit industry, including instant personal loans and NBFC lenders, were already witnessing challenges. 

So, the crisis is teaching us that just because we can take credit, it does not mean we should consider more than necessary. Pundits suggest that your fixed credit payments should not be more than 20-30% of your net monthly income. The lower you can live with, the better for your future. Thus, no matter if you have taken a home loan or a short term loan, the repayments should not constitute a major chunk of your monthly salary. 

  • Investment in health insurance is crucial

The COVID-19 virus is causing an acute respiratory disease. It is severely impacting our respiratory tract that is sending people who have contracted the virus into critical care with life-support requirements. The span of treatment is generally running for a few weeks, combined with multiple tests to detect the presence of the virus.

In India, the COVID-19 tests in private labs cost around INR 4,500, and despite the government subsidizing the same massively, it can cost up to Rs. 7,000. On average, ICU charges per day lie somewhere around INR 30,000-40,000. Without adequate health insurance, you can only imagine the hospital bill you will be left with after your complete recovery. Consider getting private health insurance on top of the one that your employer has provided you. Make sure the coverage is satisfactory to pay the highest of bills.

  • Reign in your spending

When the economy thrives, it is only natural that your income will increase. Households are known to spend more, and firms market more products looking for profits. However, as the COVID-19 has brought the entire economy to a halt, appraisals have vanished almost instantly. This should halt your lifestyle as well, but it is easier said than done. You are stuck with your maintenance and you still have those previous habits.

Thus, a proportional rise in your lifestyle, along with income, is never a good idea. Once your permanent expenses are established, try to maintain your discretionary spending up to 20% of the same and save the rest.

  • Personal budgeting is essential throughout your life

But, how are you to check your lifestyle and expenses even when your income is growing steadily? Personal budgeting is the key to healthy financial health. This will give you an insight into your fixed costs, variable expenses, and more. With a budget in hand, you can also plan long-term by judging whether to accept the credit moratorium being offered by the banks or can you manage by reducing your other expenses and saving on the interest payments.

A well-planned budget will also help you to stretch your available financial resources when the lockdown is presenting uncertainties like no other time in history where reduced paychecks and unpaid leaves are becoming mainstream.

  • Short-term financial decisions hurt during crises

Recessions and depressions hurt the active and speculative investors the most. When the markets are thrown into volatile swings, and overpriced entities lose their inflated values, most portfolios shrink by almost 25-30% in a matter of months, if not weeks. The COVID-19 pandemic is bringing about a similar trend. Investors who went in on the slightly bearish market are seeing a further decline due to the current oil slump and the lockdown.

This, again, is showing how vital it is to plan your investments for the long-term. Even if you had bought in a bullish market, the present dip should not spook you and compel you to make rash decisions. The economy is slated to recover in 2021 and the stock markets should ideally too.

  • Diversification of investment portfolio is a must

Veteran investors have always suggested one thing – portfolio diversification. During financial crises, when one industry is impacted, others usually go up. The coronavirus has grounded all forms of transport, and the demand for oil has fallen considerably. Recently, oil prices have fallen globally with the US reporting that its crude oil prices have gone negative for the first time in history. Parallelly, the gold market has surged. Investors have always taken to the shelter of gold when other markets did not guarantee returns. This is just an example of how the same challenge impacts different sectors differently. So, it is critical to distribute your investable cash into stocks, commodities, metals, and more. Diversify and diversify.

  • Nomination formalities cannot be delayed

The COVID-19 pandemic is also showing us the fragility of human lives. As the virus is raging worldwide, more than 2, 00, 000 lives have been lost already. This should teach us that some financial decisions simply cannot be delayed. While saving and investing is vital, the nomination filling of those assets is equally important. If your family is dependent on you financially, you will want your savings and investments to be directly transferred to them without going through the hassles of paperwork.

There is no better time to prioritize your nomination fillings than the current situation. Use the convenience of the online services and begin naming your nominees. After the lockdown ends, get to making your legal will also, if possible.

  • A second source of income is a great idea

If you currently have been on the receiving end of pay cuts or layoffs, this should show you the underlying fragility of your perceived job’s security. Tourism and airlines are two of the many industries that are bleeding heavily while manufacturing is fighting to keep their shops running. To keep the income flowing, a second job in another sector is helping the gig workers sustain their livelihood. As the demand has shifted, people with more than one job are surviving better than the ones with one regular employer.

Thus, plan your personal life to include a second source of income sometime soon. Just like your investments, diversifying your job will keep you shielded during all future crises. Know more about the benefits of having a second job and how to get one here.

  • Most valuable lessons are available in history

When the Great Depression rattled the world, the market ultimately revived with time. It took the speculators out of the equation and brought in expert investors on the frontlines. Similarly, the Great Recession taught humanity about bad debts. Banks revised their policies, and the market remained bullish for more than a decade. Even historical pandemics had brought about policy changes that helped the people ultimately, and everyone moved forward with a few valuable lessons learned. The COVID-19 is going the same way. Thus, for the best financial lessons, look at history. For dealing with your insecurities, look at history. If the current shock is feeling like something that we have already seen before, read what investors did then and apply those to your investment decisions right now.

Unsettling predictions and numbers are doing the rounds in the media. However, it is essential to note that the IMF has termed the current situation as the Great Lockdown, which is technically causing a depression. With factories shut and supply disrupted, the economy is bound to suffer. And if not the COVID-19, the ongoing Euro crisis or surmounting debt burden would have brought about a massive recession sooner or later. Remember, global economic downturns are not in your hands but drawing the intended lessons from them and applying them in your life is within your grasp. Take a step back to revisit your finances and lay out a foolproof plan to plug the existing loopholes. Remember, the Great Lockdown will be temporary but your financial habits will permanently stay with you.



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Shivam Abrol

Shivam is a passionate content writer with Masters in journalism. A mutiple-award-winning writer, he brings over a decade of experience as a BFSI writer. In fact, he himself is known in his circle for sound financial advice. A writer by day and a reader by night, Shivam enjoys researching and writing on various financial topics, including credit, stock market, crypto, taxes etc. When he is not spending his time penning down an informative article or opinion, he can be found playing with his kids or collecting stamps.

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