10 the lesson about our personal finances in times of crisis
Often the crisis does not cause problems, it simply sheds light on our personal finance issues, which we already have. When the economy is growing and everything is going smoothly, the gaps in our finances and our negative patterns of behavior with money remain masked. But in times of crisis, any small problem can take on threatening proportions and put our financial future in question. Here are some approaches, which we can apply in a period of crisis:
1. Create a monthly spending plan and stick to it
During a crisis, when our income is not so secure, our fears about money are activated. But when we prepare a monthly budget, in practice, we spend every lev "on paper" in advance and this helps us control our expenses and feel more relaxed. It gives us security, that we won't end up without enough money at the end of the month.
2. Have an emergency fund
If we haven't saved so far and don't have an emergency fund, which will cover our monthly expenses for a period of minimum 3 to 6 месеца, then in times of crisis this seems like a very good idea. If we had an emergency fund, we would face the recession more calmly, the loss of a job or income, as we will have a financial cushion. An emergency fund is a buffer between us and life. And not only during a crisis, because surprising and unpleasant events can happen to us at any time and it is good to be prepared for them in advance.
3. Taking out a loan is never a good idea
If we have taken out consumer loans or used credit cards in the past and have high monthly payments on them, this can play a bad joke on us in a crisis or recession. The probability of losing our income and not being able to make the monthly loan payments increases, which creates extremely high stress for us. At such a time, we see very clearly, that the best long-term strategy is to live a credit-free life. Even if we are left without a job, we will not feel pressured by payments, which we have to do to the banks, at a time when we are trying to limit our costs.
4. Have several different sources of income
If we do so, that we have several independent sources of income, this will help us cope better in times of crisis or recession. Even if we lose our job or the rental income from an investment property, we will continue to receive revenue from our other sources of income. Everyone can think about whether they can develop their online business, to help people with something, which he is good at, or to develop an activity as a freelancer.
5. To invest for the long term
When we see financial markets crash, our instinctive behavior is to sell our investments, because we are afraid, that we will lose money. However, financial markets move up and down all the time, and the surest way to realize a loss is when we sell our investments low in a moment of panic. So, it is most prudent to follow our long-term investment strategy and simply wait for the market to recover. If we set aside a monthly amount for our investments, it is good to continue doing so – so during the crisis you can get financial assets at a lower price.
6. To have a diversified portfolio of investments
One of the best strategies to limit investment risk is to spread our investments across several different asset classes, which possibly have an inverse correlation with each other. Thus, even during a crisis, a certain asset class may not perform well - for example, stocks, other asset classes such as gold, commodities or real estate can offset the yield of our portfolio.
7. Have additional health insurance and life insurance
If we don't want to rely entirely on public health care, it is important to have additional health insurance, with access to medical care in private medical centers, where we can do the necessary research and examinations. Many people also think about buying life insurance, which would provide financial security to their families in the event of an accident or loss of life.
8. To change our negative behavior patterns with money
Are we spending too much?? Do we buy expensive clothes and belongings under pretext?, that we need them? Are we living paycheck to paycheck?? Are we wondering where my money went at the end of the month? Do we have huge loan installments? All this shows, that we are not living fully consciously and have let our financial lives run on autopilot. The crisis period is the time to notice these negative and repetitive patterns of behavior and make a decision to change them.
9. We can live a simpler life
One way or another, the pandemic has shown us, that we can live without expensive entertainment. When the malls, cinemas and pubs were closed, many of us realized, that a walk with friends in the mountains or outside the city, a visit to a warm mineral pool or a good book or movie, can also bring us satisfaction. We started to think before buying a thing – whether we really need it. We got it, that we can live without going to the hairdresser and manicure every week. We have seen how few things are truly important to us and that we do not need many possessions, to be happy.
10. Let's put order in the management of our personal finances
What's been going on with our personal finances lately 12 месеца? Do we have a holistic view of this area of our lives?? Do we have a comprehensive financial plan?, which we follow and which gives us peace, that we will achieve our financial goals and dreams even to go through difficult or crisis periods? We don't need to wait for a crisis or a recession, to take money management into our hands – we can do it quite consciously now.
Usually, a financial crisis affects our normal life and forces us to rethink our financial priorities. It highlights issues and areas for improvement in your financial life, to pay attention to them, and enables us to usher in higher awareness, better organization and better overall management of our personal finances.