- Date : 29/12/2020
- Read: 5 mins
Millennials may just have had the toughest year of their lives, but it has also taught them some valuable financial lessons.
The COVID-19 pandemic changed life as we knew it. It taught us to learn, adapt, be resilient, and deal with the toughest of situations. With incomes running dry, one of the biggest lessons it imparted was how to be prudent with money and spend carefully. It changed our equation with money and instilled in us the importance of planning for life’s uncertainties.
These are lessons that not only helped us survive 2020 but will remain with us forever and ensure we are prepared for anything that life may throw at us. Here are eight key lessons that the lockdown taught us:
Related: 8 ways to manage your wealth and recover from the COVID-19 crisis
1. Creating a contingency or emergency fund
A lot of us were unprepared when the pandemic hit. We did not have an emergency fund that could see us through a few months. This became the biggest worry for families whose businesses were shut and those who saw their salaries slashed. While the expenditure remained the same, income was adversely hit. The biggest lesson was the importance of having an emergency fund. It is recommended that you have an emergency fund that can tide you over 6-9 months’ of expenses – bills, EMIs, and other essentials.
2. Budgeting wisely
Your financial success depends on your ability to budget well. Consider all variables when creating a budget: rent, EMI, bills, monthly expenses, loan repayment, insurance premium, etc. Prioritise these over frivolous spending. Also, make a note of your financial goals. These include creating an emergency fund, saving for your child’s education, a family trip, and planning for your retirement. Your monthly budget should take all these into consideration.
3. Spending only on what’s required
It’s easy to get carried away by materialistic possessions. Do you really need a bigger TV, a fancier car, a branded bag, or another pair of shoes? If there is one thing the pandemic has taught us, it’s that none of these matters. What matters is the health of your family and financial stability. Money spent on non-essentials is better saved as a safety net when needed. The takeaway is ‘save before you spend’ – and even then, spend only on what you need, not on what you want.
4. Moving to digital payments
With stay-at-home orders and most shops shut during the lockdown, we moved to online shopping and embraced digital payments. Not only did this teach us to look for bargains online and shop from the safety of our homes, it also fast-tracked the adoption of safe and contactless ways of making and receiving payments (digital wallets, UPI, QR codes, and so on). The service is not limited to general transacting. You can use digital channels to make new investments or redeem existing ones. Almost every type of financial transaction – buying and selling of stocks, mutual funds, commodities, etc. – can now be done from the convenience of your mobile or laptop.
5. Limiting borrowing money
As EMIs became difficult to service, the pandemic taught us to limit our borrowing. If you are able to manage within your means, avoid new loans and liabilities. This could mean putting off non-essential purchases via credit cards that have to be converted into EMIs, or taking a loan to renovate the house or buy a car. In addition to creating new payment obligations, such loans add on significant interest costs. If you do need to make an essential purchase, try working around your monthly budget to make the payment.
6. Buying insurance
While the pandemic was stressful for all, it was even more so for people without health insurance. Many patients needed oxygen, ventilators, and ICU care. The medicines to treat coronavirus cost a lot too. High hospital bills had to be paid out of pocket. It is critical to have a health insurance cover for yourself and your loved ones so there’s no financial strain if someone gets sick and needs medical aid. Instead of worrying about how you would pay the bill, you can focus on taking care of them. The pandemic also saw many losing their lives, and leaving family members in a financial fix. Hence, life insurance is imperative so that while they grieve the loss, they have the financial means to carry on without you.
7. Diversifying investments
The pandemic highlighted the importance of having a diversified portfolio. Even though the long investment sentiment continues to remain positive, recurring adverse events can have a significant impact on your portfolio and your ability to meet future goals. A goal-based diversified set of investments across asset classes minimises the impact of market volatility and helps to preserve your capital investment. It also gives you the flexibility to shuffle between investments to optimise your returns by taking advantage of market movements. You can take this opportunity to rejig your investments based on your goals, timeline, risk appetite, and tax considerations.
8. Preparing a will
Lastly, the pandemic taught us the importance of preparing a will, as well as mentioning a nominee for all financial assets. This makes the transition easy, smooth, and without conflict. Without a will and/or nominee, there are chances of assets being locked in litigation and not going to the rightful heir. This is one of those things that most of us tend to put off; we feel no harm will come our way.
To sum up, if there’s one thing the pandemic taught us, it’s that we have to get our financial affairs in order right away!