Financial lessons learnt during lockdown
The lockdown across the globe has been one of a kind that we have never experienced before. Each one of us is combating the spread of COVID-19 in our own possible way. However, this lockdown gave us a chance to rediscover and relearn certain things in life. Few key things that we have learned are work-life balance and value of life.
Besides that, one of the most valuable lessons to come out of this has to be our relationship with money and how we plan for life’s uncertainties. We were definitely not prepared for the lockdown, and it has impacted our finances and investment in a great way. But by having a robust and comprehensive plan in advance, we can ensure that it won’t happen again. So what are the financial lessons that the lockdown has taught us?
Having a contingency fund for such uncertain times is a must. Financial planners recommend that must build an emergency fund (typically 6-9 months of their expenses - including EMI). An investor can start investment with a nominal amount in a liquid fund through SIP. Liquid funds extend the advantage of risk-adjusted returns along with basic principles of accessibility while maintaining a healthy contingency fund. Hence, it may be considered wise to park your surplus funds into liquid mutual funds and start an SIP to build a contingency fund. However, while planning such move, the exit load structure of the scheme is also to be considered.
Next has to be having an optimal life and health cover. Health insurance is necessary for every individual, keeping in mind the rising medical costs and a spurt of lifestyle diseases. While planning their finances, individuals should consider health insurance as one of the first necessities. In times like the current one, when even getting out of one’s home and meeting people are considered risky, there should be no excuse for not having adequate life and health cover.
When it comes to investing, one should look at a well-diversified inflation-beating portfolio. For investors having a long term goal, investing during a market downturn is an ideal strategy to reap maximum benefit. It is always recommended to hire a financial advisor who would create a plan as per the goals & objective, risk appetite and time horizon.
Spending money wisely, saving more, engaging in budget exercise and leading life with fewer expenses is something which the lockdown has taught us. We have realized how easy it is to save money if we can apply a bit of discipline to things we can do without or less of. Another lesson we have learned is never over-borrow. It is important to limit the borrowing to minimize debts by making maximum prepayment as much possible.
Usually, people struggle over saving enough for their families but don’t observe basic financial hygiene to ensure that their heirs and loved ones are protected and get access to their savings and investments without hassles. The simple precaution of mentioning a nominee for your financial assets will ensure that the assets don’t remain locked in litigation but go to your heirs or a person you trust. Drafting a registered Will is also of utmost importance in financial life when looking to streamline your planning for the future.
Finally, the lockdown has taught us the importance of being digitally sound and switching to digital modes to keep on investing. It has become increasingly important to move into a digital, cashless world.
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