Financial lessons at personal level from COVID-19 to reflect & ponder upon
Where will we be in six months, a year and 10 years from now? Were we moving too fast by taking things for granted? With the onset of the pandemic, we are being necessitated to change our way of living. The awful phase is adversely affecting the economy. Majorly across all sectors, organizations are not being able to run usually. Thereby, they are compelled to cut pays and/or lay off employees. Stock market has crashed. Ramifications of COVID-19 pandemic are yet to register fully. Yet, distresses create new opportunities. On that note, people are reforming their outlook when it comes to their personal finance. We are learning personal financial lessons from COVID-19 for the better.
Financial lessons from Covid-19
Few of the personal financial lessons from COVID-19
Revisiting Contingency Plan
Foremost of the personal financial lessons from COVID-19 is maintenance of adequate Emergency Fund. Purpose of Emergency Fund is to take care of you and your family in case of emergencies like job loss, medical issues, unexpected fund requirement etc. Unexpected requirement can be in many forms. Your child who has just started his/her career (staying in a different city) may be in need of money due to current situation or any other emergencies. Your parents who are staying with you or in a different city may require financial assistance due to medical or other emergencies. Even when you experience job loss or pay cut, one thing is certain that you need to fulfill family’s basic needs. The worry is actualizing. It primarily includes the following:
- Household expenses
- Lifestyle expenses (to some extent)
- Dependent’s expenses
- Insurance premiums – life and non-life.
- Loan EMIs (if any)
Everyone may be keeping some money in savings bank account for emergencies. But most people do not know whether it would be adequate or not when a critical time (similar to present situation) arrives.
How many months can your family and you survive on Emergency Fund without your income? There is no rule of thumb. Your nature of income is a vital constituent in planning for contingencies. If you are a salaried person or if you are a professional, you need to consider the same minutely. Even your family structure will play a key role in preparing your Contingency Plan. In case you or your family member has pre-existing diseases, serious importance must be given to the same. As Financial Advisor in Kolkata, we critically analyze the family’s personal aspects to create a Contingency Plan. This is the first step towards your financial security.
You need to know how much Emergency Fund is sufficient for you and your family. It should never be utilized for any purposes not meant for the same. In case you are not properly maintaining Emergency Fund, you should consider this as one of the personal financial lessons from COVID-19 and act accordingly.
Reconsidering Family Insurance Cover
Maintenance of reasonable insurance coverage is another one among other personal financial lessons from COVID-19.
“If the bread earner of a family dies untimely, how will the family survive?” With death, income of bread earner ceases. The basic purpose of life insurance is to create cash in case of sudden demise of a bread earner. No one can or should ignore the importance of life insurance. Before you buy life insurance, you should know how much life insurance cover you need. You need to know which the right insurance product is for yourself. Your needs are different from others, you have to understand your uniqueness. Go through the policy wordings within the cooling-off period. You must ensure that you are paying life insurance premiums on time to keep the policies in force.
Due to development in medical science, many ailments are treatable. But, that leads to drainage of huge cash. To avoid financial distress, you need to take substantial health insurance coverage for your whole family. Insurance providers offer different types of plans to maximize coverage and benefits. During medical emergency due to illness or accident, health insurance will help you to maintain your financial stability.
If you do not have a health insurance policy or you and your family are not adequately covered, this is a caution light. It is not just to survive COVID-19 pandemic. Any medical emergency due to accident or illness can lead to a financial disaster. Even if your employer provides you health insurance, you should have a health insurance additionally. Word to the wise is that we all must consider this as one of the personal financial lessons from COVID-19 to maintain considerable amount of insurance cover. As Certified Financial Planner in Kolkata, we guide our clients through insurance planning.
If paying premiums in thousands are pinching your purse, think of the situation when you’ll have to pay medical bills in lakhs.
In case you are not insurable (because of being medically unfit), you need to prepare your Contingency Plan accordingly and enhance your Emergency Fund.
Redefining Investment Plan
Prudently managing investments is a methodical process. Risk and return in investing are the two sides of the same coin. Due to COVID-19 pandemic, stock markets have crashed. If your investment portfolio was mostly in risky asset classes, or if it was being held without proper asset allocation, investment portfolio valuations must have come down drastically. You may be baffled. It is time for you need to treat this as one of the personal financial lessons from COVID-19 and take corrective actions to achieve your investment objectives. Otherwise, your efforts of saving money and investing the same towards your financial goals will become meaningless.
Your investment portfolio must be in sync with your requirements. Proper asset allocation strategies as per your specific financial goals help you to diversify your investment portfolio across asset classes. All asset classes do not move in the same pace and/or in the same direction. Therefore, it mitigates risk of greater losses. During the process, it ensures that you do not take too much exposure to any one asset class which can affect the portfolio performance. Asset allocation is one of the keys towards achieving your specified financial goals. Re-balancing your investment portfolio is a subjective matter.
As Arijit Sen is a SEBI Registered Investment Advisor in Kolkata, we follow structured investment advisory processes while working with our clients. Risk Profiling remains the cornerstone of the entire journey. Risk bearing capacity and willingness to take risk varies to the core. As we develop goal-based investment strategies, we need to vastly consider the personal aspects along with the macroeconomic factors.
Our minds should be unclouded with regard to few elemental points in chronological order:
- Why am I trying to achieve? – Purpose of investments
- How am I trying to achieve? – Strategies/approaches of investments
- What am I trying to achieve? – Outcome of investments
Goal-based investing does not make you emotional when benchmarks reach its peak or reflects a dramatic fall in stock prices. When we focus on our financial goals, chasing the peaks and troughs of stock markets become a hollow drill. Discipline in investing is a fundamental solution. You can always seek the advice of a qualified Financial Advisor who can provide investment advice to you.
Overcoming anxiety
Anxiety in such uncertain times is quite natural. We have to tackle the situation judiciously. We sincerely hope that these personal financial lessons from COVID-19 will help you to ponder and reflect on your personal financial situation in a better way. We all need to take care and stay safe with our loved ones.
For professional guidance in financial planning, you can always reach out to qualified Financial Consultant and take care of your financial well-being.
