Financial Lessons We Are Learning From COVID-19
As COVID-19, or the coronavirus, continues to spread, our economy and finances have been majorly impacted.
Updated on Mar 19 2020
As COVID-19, or the coronavirus, continues to spread, our economy and finances have been majorly impacted. If you’ve seen any news, you know the stock market has taken a steep dive in response to the coronavirus’ impact. And, the Federal Reserve has provided some stimulus to hopefully counteract this negative downtrend. But, what about our personal finances? It’s a fact that many Americans aren’t as financially prepared as they could be. And, this outbreak is truly highlighting these areas of concern. An increase in emergency spending alongside the possible reduction of working hours has placed a financial strain on many Americans. This situation has created a need to reduce nearly all discretionary spending for many Americans. Read on to learn some of the top financial lessons COVID-19 is teaching us.
Emergency Funds are necessary
It’s an unfortunate reality that nearly 40% of Americans’ cannot afford emergency expenses totaling $400 or more. This fact has been driven home in the past few weeks as financial challenges have arisen and folks have struggled to meet them. Workers who deal with the public have seen their hours cut drastically, if not entirely. And, many part-time workers have also seen a reduction in hours. As this goes on for weeks, it can create issues with rent payment, utilities, and other necessities. This situation can cause a strain on your savings. And, if you don’t have much or anything saved for emergencies, you can quickly find yourself accumulating debt.
This highlights the need for an emergency fund. While we will always hope that we don’t actually need these funds, having them readily available can make situations like the COVID-19 outbreak far easier to deal with. Many financial plans take emergency funds into account, and factor them into a savings strategy.
If possible, reduce your debt
An unexpected loss of income could mean that you need to begin making necessary purchases on credit. This unplanned increase in debt should be manageable. But, it could prove problematic if you’re already dealing with high debts. Because of this, many folks have found themselves in difficult situations financially during the coronavirus crisis. This highlights the necessity for paying down debts whenever possible. Carrying precarious debts that you can’t afford to pay down can put you into a completely disastrous position when a crisis like this occurs.
Reducing your debt can be very difficult. But, it’s far easier to work on this issue in times where things are a bit less stressful. Because of this, our current situation has highlighted the need for reducing debts whenever possible. Allowing debts to remain can put you into an even tougher position when emergencies arise.
The importance of a passive income
This crisis has shown the true benefit of having a passive stream of income. As folks are forced to take time off from work, many people are losing their primary source of income, if only temporarily. This is where a passive source of income can be a life-saver. Having a secondary source of income, like owning a rental property or receiving dividends from stocks, can really lighten the financial burden in times like these. This extra stream of income can help you make these unexpected emergency purchases, and supplement the loss of your primary income source.
Have a financial plan
Not having a financial plan for your daily life can lead to many problems and inconveniences, even outside of these difficult times. So, things can be even more difficult when find yourself in the middle of a crisis. The coronavirus outbreak has shown us the true importance of having a financial plan. Financial planning, when done properly, will typically take emergency expenses into account. So, if you’ve created a budget and financial plan in the past, you may have an emergency fund that is helping you make your way through this difficult time. If not, this may be the push you need to develop a comprehensive financial plan once we’ve overcome our current situation. And, a solid financial plan can help you generally when it comes to saving and spending wisely. So, this may be something for you to look into regardless of how you’ve been affected recently.
The coronavirus has had an unprecedented effect on our society, both socially and economically. As we recover and move forward, it’s important to keep in mind the financial lessons COVID-19 has taught us. It’s always a good idea to keep an emergency fund just in case. And, keeping your debt as low as possible will help you deal with unexpected situations far more easily. Additionally, a stream of passive income can compensate for a surprise loss of your primary source. These lessons can help us all prepare for the future. And, creating a proper financial plan with a qualified advisor is always one of the best ways to keep yourself prepared.
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