There’s no question that the Covid-19 pandemic has served as a financial wake-up call for many. As we traverse these uncertain times the best thing we can do is prepare for the unknown.
Here are five financial lessons to strengthen your financial footing in the months and year to come:
- Health insurance and disability coverage are a necessity
Covid-19 symptoms can sometimes persist for weeks or even months with possible long-term health problems. It is therefore critical to have health and disability coverage. If your employer does not offer a health plan, establishing an independent health and disability insurance plan should be top priority.
Consider that health insurance offers coverage that typically pays for medical, surgical, prescription drug and sometimes dental expenses incurred by the insured and can extend to family members. It will either reimburse for expenses incurred from illness or injury or pay the care provider directly.
As its name suggests, disability insurance is a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability.
- Liquidity in an investment portfolio is key
It is a great time to invest! However, investments should be structured in such a way that if an unexpected need arises, cash can be made readily available. With the Covid-19 pandemic, we have seen several sectors of the economy operating at very low capacity or even shutting down. The individuals employed in these sectors would not have seen this economic shock coming. Planning for the unexpected is important, this should be a lesson learnt from the pandemic.
Structure your investments going forward not just on your risk tolerance level, goals, and time horizon but also in such a way that at least 25% of your assets can be liquidated within a short space of time. This will help you navigate the unexpected obstacles that life may throw your way.
- Monetizing hobbies is critical
Take full advantage of your talents! Think of a hotel employee who loves to bake and has therefore started a small business selling those baked goods to provide supplemental income. While hotels may have been required to make cutbacks to reduce expenditure which would include salaries, this hotel employee who is also a baker would still have one source of income even if he/ she is retrenched during the economic slowdown.
- Wants versus needs – the distinction has never been more important.
We all know that it is important to always have a budget and to stick to it. To come up with an effective budget, you need to differentiate between wants and needs. Needs vary by person, but some of the basic needs include things like food, housing, clothing, education and transportation. Needs are basically everything you need to stay alive and function in society. Everything else is a want.
Once you become better at differentiating between wants and needs, you will probably see that you have been able to fulfill more of your goals over the years than you realized and that can be a significant turning point. When you focus more on needs than wants, you free up income for your rainy-day fund.
- Continuous development of skills and marketability is key
Never stop learning! This pandemic has shown the importance of having skills relevant to the technological age in which we live. Learn, not just in terms of academics, but in terms of life skills. Find free online courses or invest in paid short courses but keep building your skills and keep them current with the industries that are leading the way forward in this global economy.