With the many challenges of the pandemic, did you know that there are money lessons from the health crisis you can pick up?
The pandemic seems like an unlikely situation to pick up and learn financial lessons from. The pandemic pushed the healthcare industry into its maximum capacity overwhelming hospitals and medical health workers. At the height of the pandemic, emergency rooms were running at full capacity and hospital beds were becoming scarce.
With the effects of the virus, the economy took a hit with several states ordering a stay-at-home protocol around March 2020 according to NBC News. This means that unless you were getting essential items for yourself or your family, you were asked to stay at home. The order was meant to lower down the transmission of the virus and help the healthcare industry get some breathing room.
Of course, this affected the economy as well where the main driver is consumer purchase. With only spending for their absolute necessity, many businesses and companies took a hit. This meant furloughs and layoffs for several people and the last thing on your mind could be looking for money lessons from the health crisis.
But as the new year starts and the promise of a vaccine to help people with the virus, it is a good idea to try and improve your finances and the lessons of the past year can prove to be significant. They can help you prepare for another crisis if one was to ever happen in the near future. It can also help you shed some light on where you need to focus in terms of money management.
Money lessons from the health crisis revealed excess indulgences
The pandemic forced people to focus on their needs especially with millions being affected by job loss. This is partly the reason why Pew Social Trends reported that 25% of adults they surveyed and difficulty paying their bills. With so many people trying to make ends meet, this became a reality for a lot of Americans.
This was difficult, but if you were able to get by, you could have realized one very important thing when it comes to your finances. You were able to get by with just the basics. Those excessive indulgences you might have had in the past did not really matter when it came down to the line. If you had to go with a bare-bones budget, you can do away with unnecessary spending.
You will realize that you really do not need that new pair of shoes or a new dress. You can also brew your own coffee at home rather than buying a cup several times a day. If you are used to eating out every weekend, why not prepare some meals and eat out in the backyard with your family? Looking for movie night? Stream one in your living room and make your own food and drinks for the whole family.
Extreme situations can be the catalyst for change
One of the biggest money lessons from the health crisis is that when you are facing extreme situations, it can force you to change. It can serve as the catalyst to better manage your finances. You could start to have a different mindset when it comes to money and has a clear understanding of what your financial priorities are.
When you are trying to stretch your money to make ends meet, you suddenly realize the importance of sticking to your budget. You might even begin to bring a copy of your grocery list whenever you go out just to be sure you are on track. When preparing meals, you are now conscious of food waste because you are making sure you save and stretch your food for your family.
It can also help you realize just how important your savings are and this can push you to take it more seriously. In the past, you could only be saving what is left from your income but now, you could be setting money aside for savings first before anything else. This is because you want to make sure you have some sort of cushion when things get challenging.
Comprehend and manage risk
Money lessons from the health crisis can also affect the way you look at your investments and assess risk. You have to understand that every investment comes with a risk. This is why before you invest in anything, a risk assessment is a crucial first step. This is meant to help you understand your comfort level when it comes to risk.
Normally, people start out with a high risk but high yield investment when they are still young. The reason is that they still have enough time to recoup any losses at the beginning. The older people get, the less risk they take on. It is basically for the same reason because the older people get, the more challenging it would be to make up for your losses simply because you do not have time.
The health crisis could have made you reassess your investments and the risk you are taking. It is possible that you start scaling down on risky investments to help you preserve your earnings. It now becomes more important than ever because you never know what can come next. This could force you to hold back and manage your risk better by focusing on safer investments.
You do not only save for retirement
One of the biggest money lessons from the health crisis is the realization that people need to save for the future more than just for their retirement needs. The pandemic revealed just how important an emergency fund is and how crucial it is when your income is impacted by an emergency situation. You need to have a specific fund you can use to cushion the effects of a crisis.
You might think that you can use your credit cards for emergencies or tap into your home equity when you are backed up against a wall. Though these are definitely options you can take, having an emergency fund can help you stay away from debt. Being able to tap into savings gives you peace of mind and gives you more options in case the crisis drags on.
Using your credit card for emergencies can also put you in a difficult situation. You will be able to purchase for your immediate needs but once you receive your bill at the end of the month, you will start to feel the brunt of the problem. If you are thinking about using the equity on your house as a back-up fund, just remember that you are essentially putting your asset at risk. This is the case when you encounter payment problems with your equity loan.
Avoid using debt to purchase wants
One of the most glaring money lessons from the health crisis you should have learned by now is to not get in debt for purchasing your wants. For this to work, you need a clear-cut definition of your needs so you can separate them from your wants. This is because at times, your desire to buy your wants tend to justify them as a need.
You might need a new pair of shoes because the one you are using at the moment has already broken down. But do you really need to buy a very expensive pair? You need a new phone contract but do you need to sign-up for a high fee just to have that phone you want? There will be times that the fine line between needs and wants blur a little. When this happens, it is up to you to make the smart decision.
Life experiences are great teachers but only if we choose to learn from them much like money lessons from the health crisis.