I think we've all learned a lot from the pandemic – both financial lessons and life lessons. Who would have thought that the unemployment rate would surge through the roof, the stock market would crash, recover, and shake us up some more?
But I'm not here to talk about the Coronavirus or the pandemic in general. In this post, I'm going to go over money lessons learned from the pandemic, and how it can be applied to any major crisis.
1. Increase Your Savings Rate
The leading factor in determining one having wealth in retirement is their savings rate. That is, if you're not saving money every year, then your chances of having enough to retire at a reasonable age decreases, despite return-on-investment.
Beyond that, saving money every month is critical in case of a crisis. If you lose your job due to a lay off from a crisis, your financial situation could be turned upside down. The first thing to do to begin saving money is to put together a budget.
With a high savings rate, you are banking so much of your money every month and building wealth. When that hardship hits you, you'll be so used to saving, and have had so much saved, that your emergency fund will cushion you from your sudden job loss and/or loss of income.
Storing all extra cash in both an emergency fund and investment accounts is the perfect long term strategy to handle a crisis like this in the future.
2. Always Have an Emergency Fund
With interest rates dropping, it seems like having a savings account seems less appealing, but having a bank account with at least three to six months of living expenses cash-on-hand is more important than ever. You always want to have money in an emergency, even if the emergency is not currently directly affecting you financially.
As I review in my post about emergency funds, if you have multiple streams of income in your household, then having closer to three months of living expenses saved should keep you safe. But if you only have one steady income, then it's wiser to have six months of expenses saved.
Right now, my wife and I have around $7,500 in our emergency fund, which covers just over 3 months of required living expenses, and we store our emergency fund in a CIT Bank Online Savings Builder account.
3. Plan for the Worst Such as Job Loss
Emergency savings is just the beginning. For short term crises, one must plan for the worst. This could include an emergency like a sudden illness, such as Coronavirus. This could also include loss of employment from being furloughed or laid off.
Related Post: How To Handle Being Laid Off
When the world feels like it's falling apart, having money tucked away helps ease the burden. Knowing you can pay your bills and cover unexpected expenses will allow you to spend your time and energy on what matters – whether that be taking care of yourself or a loved one.
Money is a measure of freedom, and when your freedom is taken from you in the form of a financial emergency, you may feel lost or paralyzed. By hoping for the best yet planning for the worst, you can prevent yourself from falling into a tough situation.
4. Have Multiple Streams of Income
Creating multiple streams of income will make your money work for you in times of financial crisis like the Coronavirus pandemic. Coming up with income ideas doesn't have to be tricky. Check out these related posts on how to create more sources of income:
- The Best Side Hustles You Can Do In 2020
- 8 Passive Income Ideas In 2020
- 12 Brilliant Ways To Make Money Online
By having multiple sources of income, you'll take less of a blow when one is eliminated from events such as job loss. My wife and I have two main sources of income and four small sources of passive income. If either of the main incomes get eliminated, we would have a tough time for sure, but the four passive income sources help with that somewhat.
One of the passive income sources is our investing with Lending Club. You can check out my Lending Club review here and learn how my wife and I earn over an 8% return on investment in the form of passive income on a weekly basis.
5. A Financial Education is Vital
Most people are thrown into the world of adulting without a financial education. It's amazing how little we're taught. Whether it be writing a check and filling out a checkbook, filing taxes, managing credit cards, or understanding how to create a budget; most of us know very little when we turn 18.
If you have kids, the best thing you can do is give them a financial education when they're teenagers. If you yourself have never gotten a financial education, there's never been a better time than now.
I became financially savvy after making financial mistake after mistake. I wanted to turn my life around and found myself wandering into the local Barnes & Noble every week and reading a different book. I tuned into various shows and read many blogs. You can get your finances in order, and it doesn't have to be difficult.
6. Invest for Retirement
Always always always invest for retirement. This must be a non-negotiable in your life. Too many people in their 60s say that they wish they could tell their 20s-year old self to invest more for retirement. You WILL get to a point in your life where you either can't work anymore or want to do something else and if you need to have the money to support that.
Ideally, most people in personal finance agree that you need 80% of your annual income as retirement income. So if you plan to retire making $100k per year, you would need $80k per year to last you in retirement.
This can be done in a few ways. You could have a lump sum in your retirement nest egg that you can draw $80k per year on. Another way is to have enough passive income built up over the years to pay you $80k per year. $80k per year in passive income is approximately $220 per day.
Of course, you can combine passive income with withdrawing from your nest-egg if that's more realistic for you.
Wrapping It Up
There is a silver lining to everything. In this case, my takeaway from the pandemic is that financial education is more important than ever before. This has motivated me personally to continue my financial education in order to help those in need (more on this down the road).
What have you learned from the pandemic, and how have your finances been affected?