The outbreak of the coronavirus pandemic affected the lives of many people and shook up the economy. It also impacted the financial planning process for many as uncertainty loomed over incomes and jobs.
However, these tough times also opened our eyes to how important it is to be financially prepared for such a situation. Let’s have a look at a few critical money lessons the unprecedented crisis has taught us.
1. Health insurance is not needless
The importance of having health insurance in place with adequate cover has proved to be beneficial in situations like the prevalent pandemic. Many people take a health insurance policy just to save some tax or rely on the group insurance provided by their employers. These group insurance cover vanishes as soon as a person loses his/her job.
Hospitalisation costs that COVID-19 patients have to pay could run into lakhs of rupees. Thus, a cover of Rs 4-5 lakh will never be enough. Buying health insurance cover should not be seen as an unnecessary expense: on the contrary consider it as an essential element that is a must-have for all.
2. Keep aside emergency funds
There have been huge job losses or pay cuts during the pandemic. People with substantial financial commitments like home loans or other loans have faced huge issues. The lesson learned in this situation was that everyone should keep aside an emergency fund in liquid form.
It is ideal to have funds for at least 5-6 months. These funds can be kept as bank deposits or can be invested in liquid investments to earn returns. The emergency fund should not be used for anything unimportant.
3. Diversify the investment portfolio to reduce risks
Not all investment options perform equally well at the same time. Spreading investments across various asset classes helps reduce risks.
However, these investments should be based on the risk appetite of an individual. Also, the longer a person stays invested, the better there are chances of desired returns.
4. Never plan your finances based on future income
Since the future is always uncertain, no one should make plans based on future income unless it is definite. Most people might have expected a salary hike and would have planned many things accordingly. But, instead, due to COVID-19 crisis, they faced salary cuts or even joblessness.
5. Think of ‘needs’ first, not ‘wants’
Salary cuts and job losses made many families review their budgets. It helped them learn to live on less and to reduce unnecessary expenses. If the budget is based on needs and not on wants, it can help you save a lot.
Inputs from Pepper Content