Financial Lessons to Learn from the COVID-19 Pandemic

Looking back one year ago, the economy was running smoothly, and unemployment was at an all-time low. But then, the COVID-19 pandemic came, disrupting millions of lives worldwide.

Currently, more than 26 million people have filed for unemployment since March 2020. Numerous experts note that up to 15% to 20% of the labor force could now be jobless. The U.S. has not seen those sorts of unemployment numbers since the Great Depression.

financial lessons covid

None of us saw this coming and nobody could have predicted it. The COVID-19 crisis shut down the world economy on a level never experienced before. We’ve seen how rapidly jobs can vanish, how the economy and personal finances can come to a virtual standstill. There are financial lessons we can learn.  

With this in mind, we can now look back at some financial lessons to learn for the future. Here are a few lessons the pandemic has taught us about the importance of living within our means.

Always Have an Emergency Fund Ready

In the U.S., COVID-19 drastically affected people’s ability to work, and businesses’ capacity to keep paying their employees. As the economy struggles to recover, more employees and organizations will be affected. This underscores the significance of keeping sufficient emergency funds for times like these.

If you lose your employment during this period, you could tap into this fund to hold over your family’s everyday expenses. This savings strategy and financial lessons are effective for any kind of emergency, including being diagnosed with a severe illness, being involved in an accident, or suffering from a disability that prevents you from working for a certain period of time. In that case, your emergency funds will support you and your family with a financial cushion.

Even though the current containment measures may be eased in the future, nobody knows how long the economy will take to bounce back and for the pandemic to end. A spike in infections may prompt another round of containment measures, putting people out of work once again. 

Another way you can use your emergency funds is when you must incur unanticipated costs. For instance, replacing essential household appliances like the air conditioner, refrigerator, or washing machine or paying for unforeseen medical expenses. 

Essentially, your emergency reserve funds will assist you in paying for unpredictable, but necessary costs. According to the financial blog After School Finance, people should have at least six months of expenses in their emergency fund for these sorts of situations. This is one of the best financial lessons to understand.

Diversify Your Investments

According to most financial experts, the market drop at the beginning of the COVID-19 pandemic taught us the importance of spreading your investments out. That implies that an investor with a diversified portfolio is more likely to get through difficult times and also take advantage of the situation and learn financial lessons.  

For instance, travel-related companies such as airlines were affected more than gold mining companies. Some kinds of investments offer other important incentives, such as dividends and income, while others are dangerous because of their volatility. 

Technology shares have higher volatility than utilities, for example. So by placing a portion of your money into various kinds of investments – as you can through balanced mutual funds – you limit the probability that one economic event will affect all of your investments.

However, if you own growth-oriented high-tech funds or mutual funds, you should consider growing your investments into various classes.

Have a Comprehensive Insurance Protection Plan

The COVID-19 virus causes symptoms including intense respiratory distress. This seriously affects the respiratory tract, sending many people with the virus into intensive care with life support necessities. The range of treatment runs for weeks, combined with numerous tests to detect the virus.

In the U.S., COVID-19 private lab tests cost as low as $20 or as much as $850. The average expense of hospital care for COVID-19 patients who receive out-of-network care or who do not have insurance differs significantly by age – from $51,390 for patients between 20 and 40 years old to $78,570 for those between 41 and 60 years of age, according to FAIR Health

Without sufficient medical insurance coverage, you could face hefty hospital bills once you have recovered. Consider getting private medical insurance in addition to the one that your employer has given you. Make sure the insurance can cover even the highest of bills.

Build Multiple Streams of Income

Having your whole family rely upon your one single source of income has proved to be challenging in these times. Can you imagine losing a job having five dependents? Financial experts note that you ought to have multiple sources of income. However, the biggest question is “how?” 

First of all, try to make your hobby profitable. For instance, if you can play the guitar, you can teach students on the weekends. If you are a professional in a field, you can start offering online training to people in your industry who need to upgrade their knowledge and skills. 

You can coach people on how to run a business, create a company, or in any area of your expertise. Another way is to have passive income, such as through rentals, interests, and dividends. To achieve this, you need to plan ahead of time in order to have numerous sources of income in place. That way, if one of your income sources is cut or is less than expected, you have others to cushion you for some time. 

It’s OK To Ask for Help

The pandemic has caused a lot of uncertainty in employment and everyday life. That’s why we need all the assistance we can get with financial lessons. For one, the Small Business Administration (SBA) is helping independent small businesses survive during the pandemic. Individuals who lost their jobs can also apply for government grants to help them cover their bills.

However, even with that in place, there are still many people struggling with their finances. If you end up in that situation, don’t delay in asking for help. People who are near you may be more than ready to assist you out during this time. Rather than depending on high-interest loans to get you through the tough times, consider asking your family or friends for help.

Learning the Lessons of COVID-19 Without Bearing the Brunt

COVID-19 has disrupted people’s lives to the point of extraordinary uncertainty. Even though many challenges are unique, there are some common to be learned. Set up the correct personal financial plans now to create a cushion for you and your family and also to act as a springboard to bounce back stronger from this temporary setback.

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