- The current global health crisis has not only threatened millions of lives worldwide but has also inflicted a devastating blow to the global economy.
- This teaches us the value of financial preparation to be able to successfully take on any financial blow we may eventually face.
- We must prepare financially during a booming economy so that we can withstand the negative effects of a slow one.
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For many of us, the economic downturn caused by coronavirus is our first recession. The current global health crisis has not only threatened millions of lives worldwide but has also inflicted a devastating blow to the global economy. That said, tough times like the one we find ourselves in at the moment are great teachers too. They teach us a lot of things, including the value of financial preparation to be able to successfully take on any financial blow we may eventually face.
Here are a few lessons we could learn from the current health and economic crisis the world is facing today:
It pays to have a practical financial plan covering every possible situation in life.
Only a few of us have some sort of financial plan—either retirement or insurance—and most are purely work-based programs.
Your job, including all of the financial plans and incentives attached to it, are all at risk during an economic crisis like the one we are experiencing today.
That is why it is vital to have your own financial plan that will allow you to cover every possible financial traps that you could encounter in your life. These traps include illnesses, accidents, death, and economic losses.
Insurance plays an important role in a person’s financial arsenal.
Getting treated for coronavirus comes with a hefty price tag.
Insurance doesn’t just cover death. It can also cover financial losses due to illnesses as well as accidents. Having no life insurance is like going to a war without any protective gear.
Every person needs a financial war chest.
Most parts of the world enforced their own lockdown and preventive measures to stop the spread of the coronavirus in their communities. While these strict measures are needed to help manage health risks, they have negative impacts on the livelihood of the workers who temporarily or permanently lost their jobs.
The majority of us were put in a “no-work-no pay” status while others saw their income decreased due to a limited working capacity as the effect of the quarantine measures.
With no emergency fund saved in the bank, we will be forced to search for other solutions just for us to compensate for our lack of income. That puts us in a situation where we have no choice but to borrow money so that we can make ends meet before we can get back to work.
To withstand a sudden loss of income, it is important to have at least six months’ worth of your living expenses stashed away in your bank account.
Having other sources of income will help us manage the risk of financial loss.
Most of us depend on our jobs and businesses as our sole source of income. The current coronavirus pandemic has shown us that relying on one income source is a dangerous financial move. This puts you and your family at financial risk as soon as you lose your single income source.
Setting up multiple sources of income through side businesses and investments will help you hedge income loss risks. Start making a strategy that will help you launch a side business or start exploring the various investment options you have that will allow you to actively or passively grow your money.
The economy goes in a cycle of booms and busts. We must prepare financially during a booming economy so that we can withstand the negative effects of a slow one.