It’s safe to say that the Covid-19 pandemic caught most of us off guard. While some people prepared a few weeks in advance and bought food and other supplies, most of us watched in horror in slow motion as events unfolded. Many of us are still recovering from the consequences and current events.
Although millions of people have been put in a bad spot, things could have been much worse. The government acted quickly by adopting the CARES Law, which offered stimulus checks to individuals, expanded unemployment benefits, loans and loan guarantees for businesses, and repayable small business loans for qualifying businesses.
These helpful measures have put money in people’s pockets and saved millions of people from becoming unemployed. However, these measures were only a palliative. They could not prevent more than 40 million workers from apply for unemployment benefits, prevent dozens of companies from bankruptcy, or help the millions of other people who are struggling to get by.
We don’t know when the unexpected will happen again. And we don’t know how much the government will be able to help us, and if so, if it will be enough. For example, a second stimulus check would help millions of people, but it is not known at this time whether one will be adopted or not.
Right now, the best thing we can do is prepare for the unknown. Here are some lessons learned that we can apply to help us prepare for a second wave or an unexpected future event.
Time to rethink the emergency fund
Most financial experts recommend having an emergency fund. The amount they recommend you save varies. The basic recommendation is have at least $ 1,000 set aside for an emergency. That’s a good start, but it’s usually enough to keep most people from automatically applying for their credit card at the first sign of a large and unexpected expense.
Other experts recommend allowing at least 3 to 6 months of living expenses. This is a much better recommendation, as it gives you a lot of leeway in the event of a major unforeseen event. 3-6 months should generally cover a period of unemployment or other major expenses.
However, most of us have not lived through a time like the one we are experiencing now. It is not common to see more than 10% of the working population claiming unemployment benefits in less than two months.
This will vary depending on the person and the situation. At a minimum, I would aim for 3-6 months of living expenses, if you can swing it. If you can’t save that much, then work steadily to build your emergency fund as large as possible.
Should he be taller? It is not a bad idea to save more than 3-6 months of living expenses if you have irregular income or don’t think you could easily replace your income if you were to lose your job unexpectedly or incur significant expenses.
Getting rid of your debt has become more important than ever
I have often heard it said that debt kills financial dreams. There is a lot of truth in this statement. Having debt means you’ll always be working for someone else. It also increases your fixed obligations, making it more difficult to achieve financial independence.
Take a few moments and add up all of your recurring debt payments.
- How much are you spending on your mortgage, car payments, student loans, credit cards, car payments, or other loans?
- What percentage of your monthly income do these payments represent?
Now look at the previous section on saving money in an emergency fund.
- How much do you need to save to cover 3-6 months of living expenses?
- How much less would you need to save if you wiped out some or all of your debt?
Debt is cheap right now. Interest rates are low and companies are trying to extend credit in order to sell more inventory and stay in business. But that doesn’t mean it’s a good idea to take out an unnecessary loan.
Instead, you’ll be much better off in the long run if you eliminate your debt. If you can’t do it right away, then look into refinance your mortgage Where your student loans at a lower interest rate. You can also transfer your credit card balance to a 0% credit card balance transfer. This will lower your monthly payment and save you money in interest each month. This will allow you to pay off your debt faster and give you more flexibility in the long run.
It’s OK to go on the defensive
We live in an economy based on consumption. This has reversed in recent months, with forced business closures that have caused most of us to delay major purchases, such as buy a new car, buy a new house, do expensive home renovations, and make other major purchases.
In many ways, the Covid-19 pandemic has forced us to reassess wants and needs. Yes, sometimes we have to move to a new home or do some major repairs. And sometimes a car just needs to be replaced. But there’s also nothing wrong with delaying those big purchases if your circumstances allow it.
Delaying major purchases can even be a good decision if it helps you improve your financial situation. For example, delaying the purchase of a car for a year or two can save you enough money to make the purchase with cash instead of taking out a loan. This will save you from making monthly payments and provide you with better cash flow in the future.
You have to think beyond the money – preparation is key
Money solves a lot of problems. But it won’t put food on the table or medicine in your cupboards if store shelves are bare.
Now is a good time to rethink how many supplies you keep on hand. You don’t have to become a hoarder. But it’s not a bad idea to stock up on supplies like shelf-stable foods, medicine, paper products, feminine products, or any other supplies that you use regularly that might be compromised due to supply chain issues or people running around on these products in stores.
Make sure your insurance policies are up to date
Insurance has only one goal: to transfer the risk from you to someone else. If you’re rich and can afford to self-insure, then go for it. But most of us are not. That’s why we have health insurance, life insurance, car insurance, home insurance and other policies as needed.
Now is the right time to review your current insurance policies. Make sure you have sufficient coverage and the right policies. Sit down and read the fine print and understand what your policies cover and don’t cover. You might be surprised. Finally, it’s a good idea to review these policies and shop around for rates every year or so. Your situation may have changed and you may need a larger or smaller policy than the one you previously held. Or you may find that you can get lower premiums by switching to a competitor. You won’t know it until you review your policies and shop around.
Planning goes a long way
We all hope there won’t be a second wave. And we all hope that we will never have to experience a similar event in our lifetime. But that’s the thing about Black Swan events. You just don’t know if or when they will happen. These are just a few ways to prepare for the unexpected.