COVID-19 has affected just about every aspect of our lives – from the way we work and learn to how we socialise, keep fit, shop and travel. It’s also affected our business development plans and maybe even our kitchen renovation project that may have been put on hold or scrapped altogether.
As the world continues to come to grips with the pandemic and its economic impact, there are a number of emerging financial lessons we’ve either personally drawn or can draw from the event. Here are our six #COVID-19MoneyLessons to better equip you for the next downturn – and life.
#COVID-19 Money Lesson 1: Set aside enough emergency cash
From the time you enter the workforce, the golden rule of financial security has always been to keep sufficient cash to cover a few months’ worth of living expenses, such as housing loan payments and food, in case of an emergency. But how many of us actually have an emergency fund, let alone one that can cover us for at least three to six months?
The climate of uncertainty brought on by COVID-19 reiterates how important this emergency money would be, especially in the event of job loss, loss of a family breadwinner, or if you’re an entrepreneur, having to close shop for a period of time.
If you had heeded the old emergency fund advice and suddenly had to take a pay cut due to dwindling business at your company, you’d be relieved that you can still keep up with monthly bill and loan payments. Those who are struggling on the other hand will likely now make it a priority to build an emergency reserve that can last longer.
#COVID-19 Money Lesson 2: Don’t underestimate that side income
Whether it’s a food delivery gig on weekends, online Chemistry tuition for secondary school students on weeknights, or selling your hand-sewn items for kids online in your free time, the side income you earn can offer important financial support during uncertain times – either by supplementing reduced income or as a primary income source if you’ve lost your day job.
Safe distancing measures and stay-home notices during COVID-19 have boosted demand for food delivery service, online tuition to supplement home-based learning as well as things like home-made face masks delivered to your doorstep, creating significant income increases for those offering such services.
Even after COVID-19 blows over, you’ll want to keep up that side job – not just because you never know when the next setback is coming, but also because the extra money earned can go towards your goals like putting a down-payment on a home or buying a new scooter.
#COVID-19 Money Lesson 3: A financial detox every now and then does wonders for your financial health (and self-restraint)
Not being able to hit the malls for new clothes, dine out at fancy cafes, throw back martinis at your favourite watering hole… and generally not spending on non-essentials for several weeks during the circuit breaker period wasn’t exactly as terrifying as you thought it’d be, right? And without realising it, you’ve undergone a financial detox!
Eliminating poor spending habits is a key part of an effective financial detox, which is really aimed at making your finances fitter i.e. healthier bank balance, keeping within your credit card limit, staying within your monthly budget and so on.
Those small impulse buys may seem insignificant at point of purchase, but cumulatively, they tend to be the big culprits of overspending. By the end of your detox, your bank statement will show how much how much more you’re saving compared to other months, and you’ll be happier.
So, pandemic or not, make it a point to go on a #Don’tNeed,Don’tBuy detox regularly from now. Start with a one-week detox every quarter or a one-month detox annually, whatever suits you, and gradually increase the frequency as you become more disciplined. Sure, this won’t make you rich instantly, but it could be the life-altering new habit that’ll bring you closer to your dreams!
#COVID-19 Money Lesson 4: You can turn to your insurance policy for cash when you run low
COVID-19 has shown how important is it to have adequate reserves to cope during any crisis, be it a critical illness or an economy crash. But that cash doesn’t always have to take the form of money in the bank. Insurance plans with cash value can help tide you through a trying period too.
While we all know that life insurance policies give a lump-sum payout to help your dependents get by financially in the event that you pass away, or suffer a terminal illness or total and permanent disability, many of us forget that there are some policies which offer cash value that we can tap into outside of these circumstances. To find out how you can utilise your policies which offer cash value, check out this article here.
#COVID-19 Money Lesson 5: Beware the downward spiral of lifestyle creep
As your income or salary increases, your standard of living tends to expand – also known as lifestyle inflation – with your greater ability to afford former luxuries that quickly become necessities. And it’s easy to find yourself whooshing down that slippery slope of “lifestyle creep” if you’re not careful. Before you know it, you’ve may have a 30-year mortgage on a home too big for you or an expensive country club membership you don’t use hanging around your neck.
When your salary increment gets held back, profits drop or an income stream stops altogether, many of those fixed expenses for luxuries, like annual membership fee on a premium credit card, weekly spa sessions and monthly payments for a second family car, often fail to be addressed. Therein lies the danger of lifestyle creep; it happens so gradually that you don’t notice it. That’s a scary indication of how hooked we’ve become on excessive consumption.
The severe economic impact of COVID-19 is expected by the government to last a year at least and you don’t want to wait till things get really bad before you decide to take action. This pandemic is a sobering wake-up call to reassess our true needs, embrace the basics and scale back some of these unnecessary extravagances not just until the economy picks up but even beyond that.
#COVID-19 Money Lesson 6: Never stop learning
Continual learning doesn’t just stave off age-related mental decline. That process of discovery and putting new skills into practice boosts your confidence while opening pathways to meet new people and therefore expand your social network. Both of which are useful in any economic climate, not just one filled with gloom.
Chief of all, more skills mean greater employability. And, in this day and age, it’s all about versatility. So breadth of skills is probably more beneficial than depth of knowledge in a particular area as it allows you to be nimble and flex your know-how across different industries. With closure of non-essential businesses during the pandemic, for instance, you may have found your newly acquired skills in computer maintenance useful for earning an income in other non-affected industries.
While there are many continuing education degree and diploma programmes offered, including online ones with prestigious universities abroad, you don’t always have to spend a full year or three studying to include a new qualification in your CV. Adding just a single skill at a time, for instance, coding basics, digital marketing, managing emergency response or baking Western desserts, can make a huge difference to your performance, and eventually your salary as well as promotion or opening the doors to other job opportunities. Time to use up those SkillsFuture credits!
Above all, COVID-19 has taught us that you never know when a financial curveball is coming your way and how long its effects will last. So the best thing you can do is to be ready for whatever happens. It’s taught us that sometimes, even the best plans run askew, and even if we’d rather not have personally learnt some of the lessons it threw at us, we can at least now hope that if we apply some of these #COVID-19Lessons, the next setback won’t be as hard on us.