7 Money lessons 2020 taught us!

Let us look at 7 crucial lessons that 2020 taught us about money and planning.

Jan 19, 2021 08:01 IST India Infoline News Service

Year 2020 had been a tumultuous one, to say the least, as a global pandemic has thrown us into situations we never imagined. The good thing that has come out from this year is – we have learnt to be prepared and adapt to circumstances like never before. One thing is for sure, this year taught us lessons in every aspect of life. And these lessons are going to be very handy in 2021. In that spirit, let us look at 7 crucial lessons that 2020 taught us about money and planning.

  1. Emergency fund is a MUST: Emergencies are occurrences we don’t expect will happen to us, until they really do.  An emergency fund is meant for precisely for those emergencies. Setting up an emergency fund is one of the first things you should do once you start making money; in fact, the sooner you start, the better. The thumb rule is to have at least six months’ worth of income set aside for your emergency fund, to help you tide over unemployment hitches, medical emergencies or other unexpected expenses. People who followed this rule were a lot more sheltered from the onslaught of the pandemic.
  2. Health Insurance is a necessity not an option: Health is wealth, now more than ever. If you've lost your job and also have a family member in the hospital with medical bills piling up, it can burden you financially. The mental stress can take a heavy toll, and in times like this health insurance can come to your rescue. Today is a good day to start if you aren’t insured. Select for plans that offer full coverage for family members and low premiums over time. Your family's health is not something you want to take for granted. As this global health crisis has shown us, tough times can fall on us anytime, so it's best to be prepared.
  3. Diversify your investments: There is a well-known saying in investments, when the economy is good, people invest like it’ll always be good, and when the economy is bad, people invest like it’ll always be bad. But, what this year has etched into us is that things always change. Stock markets and other financial assets go through upswings and downswings. Always have, always will. That is why it is important to build resiliency in your portfolios. This can be done through diversification. Investing in a range of assets, industries and geographical locations can help spread the risk. When one investment falls, another may perform better helping to create balance.
  4. Kill the debt first: There are few things scarier than losing your income while having debts to pay at the end of the month. It’s okay to borrow to fulfil your aspirations, but ensure that you have a plan on how to repay your debts and always prioritize those repayments. Also, your debts should total below a fixed percentage of your income so that, even if you see a fluctuation in your income, you can still continue to pay off your debts.
  5. Focus on the long-term: In times of a crisis, it's difficult to focus on the long term because it's hard to visualize how the crisis might play out. However, despite that, there is great value in sticking to the long game. In March 2020, as Covid-19 virus began spreading uninhibited across the world, and countries started raising their boundaries and locking up, stock markets in India plunged. They were hitting yearly lows every other day. Investors were panicking and selling their shares.  At present, Sensex and Nifty are registering record highs every day. The tides change. It is therefore imperative to keep your focus on the long term and see short term volatility as an opportunity.
  6. Live within/below your means: This pandemic has forced us to live differently than we ever did before. And for many of us that actually resulted in better savings and meaningful and targeted spending. Even though things are better now, they are still uncertain. Many of our purchases were driven by impulse rather than need. Covid-19 has forced us to streamline our expenses. If we continue to live in a similar fashion, we could all save more and invest towards a more financially secure future. Set out how much you need for essential expenses like bills and debt repayments, saving for the future and spending on things you enjoy. You might need to give up a few luxuries and save for big-ticket items. As we have all learnt this year, all the luxuries in the world can't make up for the peace of mind financial freedom brings.
  7.  Build multiple sources of income: This year squashed the idea of having a steady, stable income forever. Now, more than ever, it is time to stop relying on a single source of income and find ways to create multiple sources of income to fall back on. Focusing on creating new income channels in the key. It could be anything- from monetizing your hobbies to doubling down on your investments. In this digital age, it is a lot easier and more accessible to build a side hustle. Even if it's a small amount, over time, the money saved up can make a huge difference.

Related Story

Open Free Demat Account (Rs699)