The recent COVID-19 pandemic has taught us that the lack of financial planning can bring a wave of interminable problems, worries, fears, and financial distress. Now that we are in a mammoth state of uncertainty and change, how to survive-and-thrive today and in the coming days ahead is of major concern. While we do not know how long this would be or when another crisis will strike, it is crucial that at this point in time we take into heart some of the most important financial lessons from this crisis:
1. EMERGENCY FUND IS A MUST.
An emergency can happen anytime, anywhere, and to anyone. The lack of an emergency fund for accidents, deaths, medical illnesses, natural calamities, and loss of job and income can cause anguish amongst the affected ones. But not to those who have adhered to their IPON (savings) challenge. Today, they have a good reason to smile.
In reality, our ability to cope with unexpected events is greatly affected by our financial means. Failure to prepare sufficient emergency funds can only amplify the worst effects, often leading to a financial crisis.
Even micro-businesses that have incurred a severe loss of income understand the importance of having a liquidity buffer. So, it is imperative that we save a portion of our salary so we can set up an emergency fund that is equal to at least 3 to 6 months of our monthly income.
2. A JOB IS TEMPORARY, SO IS INCOME.
Many have lost their jobs, particularly the public transport drivers, street vendors, construction workers, those who do piecework, and others who merely live from paycheck to paycheck. There are those who lost jobs temporarily but have to endure the no-work-no-pay situation.
One important lesson we can derive from this crisis is that a job is temporary; we can lose it anytime. Thus, we have to create multiple (and permanent) other sources of income.
We may explore other income opportunities outside the comforts of our present job. Many people have now realized that working from home is a viable option to earn. The bottom line is to have a fallback in case of a sudden loss of job.
3. STICK TO THE BUDGET.
It is time to evaluate your budget, your existing debts, and your bills. How do you allocate your budget? Can you still cut your expenses? Would there be any discretionary income left?
We have to set our priorities and remain frugal, especially during a crisis. By now, I believe many have realized that it is frugal to stay at home. It is a good way to reduce our own transportation and eating-out costs, leaving us with higher discretionary income and investable fund.
Those who accumulated savings, delayed gratification, and refrained from buying “wants” prior to this crisis have their payoffs now, and they are worth emulating.
So, the next time you set a budget, stick to it. Financial discipline is key. Our main concern during a crisis is how to stretch our income to cover basic necessities like food, medicines, and payment for utilities.
4. IT PAYS TO INVEST IN THE FUTURE.
Save at present and invest in the future. We have to take care of the present as well as our future needs. Having a clear vision, an optimistic perspective, and a set of financial goals can motivate you to commit to investing. Many investors have successfully overcome a crisis in their life through asset accumulation or investing. They have also learned the importance of diversifying their investments to match their goals and risk appetite, and to adapt to change.
For instance, when there is an economic recession and when prices of stocks are low or real estate prices are falling, investors may stay the course and sell their bond investment instead. However, when the economy is good, they can sell their stocks and use the money to reinvest or expand their business.
Stocks are said to be a great wealth magnifier due to potential compounding of its gains over a prolonged time. To successful investors, it truly pays to keep money invested for a long time. Regularly investing a small amount for a longer period can provide you big dividends.
5. SAFETY NETS: LIFE AND HEALTH PROTECTION
On top of our medical worry over COVID-19 pandemic is how to keep our loved ones healthy and safe. By now, we have learned to trade-off our freedom by staying home to support the greater good of the public.
We have embraced fully the impact of maintaining good hygiene and what it is worth to follow social distancing. But above all, we have apprehended the significant contribution of health and life insurance as our basic safety nets. This pandemic has caused so many lives, and families, particularly of deceased breadwinners, are now facing the burden of surviving from loss of income.
This is where life insurance works best as it will serve as an income replacement in case of an untimely death of the policyholder. If only individuals have it, their beneficiaries would not have to worry where to procure the money to pay for funeral expenses, to pay for existing debts, or to support the education of their children.
In the case of healthcare, though our government subsidizes for medical costs of COVID-19 patients, we cannot discount the reality that having a sufficient healthcare insurance coverage can give us and our family peace of mind. Accidents, medical illnesses, and even deaths are inevitable.
So, get your healthcare and life insurance while you are still young, healthy, and earning.
6. FINANCIAL EDUCATION IS KEY.
A crisis can lunge many families into challenging situations. We have seen the worst during this pandemic and we can only imagine where a prolonged crisis can lead us to. Following the media too closely has given us a clear picture of what life is, especially for the poorest of the poor – the ones who are said to be hardly hit by this crisis.
It does not exempt even the middle class from the magnitude of this pandemic’s impact. But somehow, we know that the middle class and the rich have a greater chance to recover. Why? Education is key. Whether one derived it from formal education or from a business experience or mentoring, financial literacy can be our greatest survival tool during any financial crisis.
The call to educate more people to start financial planning can be a game-changer. Educated people can spot opportunities amidst problems, and they can use valuable knowledge and money skills to sustain their standard of living, raise their quality of life, and contribute to nation-building.
Indeed, financially-independent families can contribute to faster economic recovery and vice versa. On the other hand, a higher level of poverty and unemployment rate can be a real burden to the government.
Rex Mendoza, a great speaker and financial guru, said, “If we are to become a prosperous nation, we have to be made up of prosperous families.”
Now, more than ever, we must uphold financial education and advocate for this cause.
FINAL THOUGHTS
According to Robert Collier, “In every adversity there lies the seed of an equivalent advantage. In every defeat is a lesson showing you how to win the victory the next time.”
A crisis like COVID-19 pandemic has convinced us that life is uncertain and that change is inevitable. Any unexpected event lodges us on a very thin line between adversity and opportunity. Do we look at it as an adversity that can pull us down the drain, leaving us empty-handed and hopeless? Or an opportunity for us to measure our strength and enhance our survival skills?
Instead of dwelling on the enormity of an adverse outcome, we can instead capitalize on the lessons we have derived from this, apply them in our daily actions, and inject them into future plans.
After all, this would not be the only crisis that will come upon us. Hence, we must plan, and expect the unexpected. Let us ruminate today as we learn from our past financial mistakes and failures, and resolve to do better so that in the next crisis, we will be able to define that moment when we survive-and-thrive victoriously!
