What COVID-19 pandemic taught us on managing our finances

Highlights

• Ideally, your emergency fund should be sturdy enough to bankroll at least three months of expenses.
• To keep your credit score in check, pay your existing debts (if any) on time and try not to skip any instalment as its dents your score.
• The easiest and simplest way to kick financial distress out of the window is to live within your means.

The COVID-19 pandemic caught the world off guard with its rapid spread and severe health consequences. The world virtually came to a halt, forcing businesses to take a back seat. The devastating economic impact has somewhat been aggressively handled by central banks around the world, pumping the highest level of liquidity into the system ever.

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However, despite the government’s seevral relief measures, job losses and salary cuts led to a cash crunch and severely dented the common man’s finance. As the pandemic is still here and even worsening in some countries, it’s important to have a financial foresight. We have listed below five tips to help you to stay ahead of any uncertainty that might threaten your financial well-being.

Related article: 3 Financial tips to get you through coronavirus pandemic

1. Have an emergency fund

An emergency fund is slightly different from a savings account. Although one can dig into one’s savings for day-to-day needs, the emergency fund must not be depleted for petty expenses. The sole aim of having an emergency fund is to back you up in case of an emergency such as a job loss, or an unforeseen financial burden for any reason.

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Ideally, your emergency fund should be robust enough to pay off at least three months’ worth of expenses. Also, it should be invested in a liquid asset which can be accessed at any time.

2. Budget your expenses

Budgeting your daily expenditure could do wonders to your financial health over the long run. With budgeting you could get important insights such as how much surplus cash flow you can create by omitting a few unnecessary expenses or increase your savings by making some bulk purchases on groceries.

What COVID-19 taught us on managing our finances?

Creating a budget may sound like a tedious task, but once you get a hang of it, it becomes easier. Also, when you get to save a few extra bucks every month, it becomes a fun habit.

3. Keep a good credit score

Credit scores matter a lot when you apply for a loan. In the time of an emergency, a short-term loan could keep you stay afloat while you work your way out of the financial distress. However, without a good credit score, it becomes very difficult to approve a loan especially at a lower interest rate.

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To keep your score in check, pay your existing debts (if any) on time and try not to skip any instalment as its dents your score. If required, delay gratification but target your instalments first.

4. Live within your means

This is probably the most heard financial advice. The easiest and simplest way to kick financial distress out of the window is to live within your means – put simply, one must spend within one’s capacity.

Don’t try to keep up with the Joneses and try not to swipe your credit card every time you go for shopping. Using cash helps to curb expenses, but with credit cards its very easy to splurge on just everything.

5. Amp up your earning potential

People who faced the most distress during COVID-19 were the ones with only one source of income, most probably a salary from job. The pandemic has taught us it is not as easy to disrupt your online source of income as it is to disrupt a physical business.

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In fact, digital businesses have seen a mammoth growth at a time when most of the businesses relying on brick-and-mortar model went bust. In today’s digital age, you could easily self-publish an e-book, start a blog, do affiliate marketing, etc.

Bottom line

With COVID-19 being a murky reminder of life’s uncertainties, the only thing that is certain is that financial distress could anytime come knocking at anyone’s door. However, if one is prepared beforehand with some very simple yet highly effective financial strategies, it is easy to minimise the severe impact, if not completely dodge it.

Read more: Five tips to hack your way through financial freedom