3 Key Financial Lessons Learned from COVID-19
It’s hard to plan for the unexpected, even under normal circumstances. In the sudden case of COVID-19, no one could have prepared to handle the drastic shift we all experienced at once.
Though, in times of change, we learn how to adapt and often learn how to evolve in a better way. If we’ve learned anything so far, it’s the importance of being prepared financially. Although the effects of the virus were out of our control, we can take action now on a few financial lessons we’ve learned as we move forward.
An Emergency Fund is a Priority
Saving is often thought of as a daunting task. To help, experts have encouraged savers to aim for $1,000 as a baseline. It’s an adequate amount to avoid leaning on credit when something minor unexpectedly happens, like an appliance failure or a tire blowout. But what happens when a major financial setback occurs?
Since the job market has been favorable over the last several years, many people have not been saving for significant losses, such as a job loss. Although unemployment may be an option, funds can take time to become available and may only cover a fraction of monthly expenses.
Savers should use this time to rethink their savings goals and aim to save three to six months’ worth of expenses. The pandemic has shown us that having a healthy emergency fund is a priority going forward, and it’s your best safety net during times when the influx of steady income may be out of your control.
The Importance of Eliminating Debt
When revenue is replenished every payday and expenses are covered, it is easy to give little thought to how much is going toward unnecessary debt. When we are faced with financial hardship, we become painfully aware of how much of our debt consumes our income.
With the economic ups and downs stemming from the virus, it’s difficult to know when life or the job market will return to normal. Eliminating debt now not only allows you to save more of your money, but it relieves some of the burdens of financial obligation when income becomes tight. It also allows you to allocate your funds where they’re needed most when unforeseen circumstances arise.
Now is an excellent time to consider refinancing your debt. Shift your high-interest credit card debt to a lower-interest credit card, refinance your home, or refinance your vehicle. Every step toward eliminating unnecessary or high-interest debt is a step in a debt-free direction.
Thinking Critically About Purchases
For many, the pandemic sheds light on how frivolously money is spent on wants versus needs. The restrictions on activities and tightening budgets naturally helped people realize how easy it is to postpone large purchases until it becomes necessary.
Budgets may be getting back on track, but the lesson of thinking more critically about the purchases we make is still important. Especially if it’s an item that you know you will only enjoy temporarily.
To help keep you in this mindset, as a rule of thumb, only purchase what you can afford in cash. If you can’t pay for it in cash, you can’t afford it. If you’re still working towards savings and eliminating debt, it’s even more important to think critically about what you’re buying since every purchase takes money away from your financial goals.