Authored by Adam Fayed
There’s no denying that COVID-19 has been the catalyst of recession in the year 2020. The pandemic has left out its ripples in every phase of our life, and financial planning is no exception. People quickly saw all their savings evaporating and payrolls taking a plunge.
As we are healing from the pandemic, it is essential to attend to financial planning. Whether it’s personal finance or corporate finance, the planning scenario has undergone a drastic change.
To cope up with these damages, you have to enforce new financial planning strategies. Despite the uncertain environment bought by the pandemic, there are some steps you can take to build your financial strength.
A personal financial consultant is one way to deal with this situation. However, it’s high time you understand your finances better. Take a deep breath, as this post will walk you through everything you need to know about personal finance planning after COVID-19.
But, before we help you devise your financial plans, let’s take a look COVID-19 has affected financial planning.
How Has COVID-19 Affected Financial Goals
If you are reading this piece, we think it’s safe to assume that you also fell prey to the financial setbacks of COVID-19. It would be rare to hear someone say that COVID-19 has accelerated the financial goals.
The pandemic situation and the lockdown forced people to reassess their financial goals. Besides, in the past few months, the living costs have substantially raised. If you think that ease of lockdown also means the return of normalcy in financial aspects, you’re mistaken.
Savings & Investments Have Taken a Toll
One of the most felt impacts of the pandemic is how taxing it is on savings and investments. Some of the best saving options and investment avenues are mutual funds, stock markets, fixed deposits, etc. People also believe in investing in real estate and equity.
However, 2020 saw a sharp rise in the loss of jobs and skyrocketing unemployment rates. So, how has this changes the investment scenario? Well, with the loss of employment, there has been low demand for making investments.
People have to shell out their savings to run their daily life. In such situations, savings and investing are not feasible. Where people are struggling to make ends meet, investment and saving is a far-fetched idea.
The Rise in Insurance Premiums
It’s no secret that COVID-19 has led to increased awareness about health and diseases. One of the pandemic’s harsh truths is that people are increasingly relying on insurance to pay off healthcare bills. As a result, insurance premiums of existing policies have shot up.
Many of the insurance agencies have put the burden of this pandemic on their policyholders. Because of this, life and medical insurance policyholders are in a fix. Financial advisors and experts claim that the cost of premiums will take a 10-20% hike.
A time where people need their health insurance a most, increase in premiums is an additional burden.
Retirement Planning
Unfortunately, COVID-19 has resulted in mass unemployment of the elderly generation. If the current situation persists like the previous recessions, it will take aged professionals longer to find work. Moreover, finding a job will is not going to be as easy as it was before.
These age groups might find themselves to be underemployed and working for fewer payrolls than before. This situation has pushed many people to seek retirement planning. They also resort to financial investment consultants to have a better future.
Pay Cuts, Job Losses
One of the most significant fallouts of the pandemic is the number of job losses. Also, the employees have to face pay cuts. In the latter situations, it often reforms to a furlough. Despite the rising cost of living and expenses, employers are practicing pay cuts.
Many companies are also offering their employees buyout packages. These packages are directed towards long-tenure employees. Job loss and pay cuts are forcing professionals to switch jobs or face unemployment.
In any case, financial planning is undergoing a crisis. Without a job and with pay cuts, financial planning for professionals is not on the right track. Hopefully, once normalcy approaches, job losses and pay cuts will reduce.
Tips for Financial Planning Post Pandemic
With all the above aftermaths in mind, we have some fantastic financial tips to share. We recommend you avoid panic. These tips will help you to navigate your finances. With these valuable tips, you can avert uncertainty in personal finances.
Reconsidering the Debt Strategy
One of the first things to include in your post-COVID-19 financial plans is to reconsider debt strategy. Having debt, especially a credit card debt with high interest, is not advisable. Moreover, in the current situation, it’ll add to the financial burdens.
Because of the volatility of the stock market, interest rates are sinking. If you are carrying loans, it is time to refinance them at a reduced rate. Opt-in for a balance transfer card to ensure lower interest rates on credit card debt.
If you carry federal student loans, the government has suspended payments for a while. This measure will offer temporary relief to debt holders.
Adding Emergency Savings
Good financial help and advice will ask you to add to your emergency savings. During these uncertain times, you must build a solid emergency saving. Financial planners will insist you have sufficient emergency savings.
There’s no rule of thumb when it comes to the amount for emergency savings. However, try to save four to six months of expenses as emergency savings. However, with the pandemic floating, it is better to save at least a year’s expenditure.
If you are unsure how to start saving, you can start by trimming the expenses for nonessentials. Dedicate the extra penny to build your emergency savings. Also, don’t let your emergency funds sit idly in your savings account.
Put your emergency funds in Liquidity Mutual Funds for more returns. You can choose an array of instruments to your liking for this.
Getting a Budget Makeover
Unarguably, the situation is far from ordinary. There’s uncertainty that marks the way for professionals and businesses. At this time, you have to ensure that you can cover your overhead expenses, and this should be your financial priority.
Revaluate your spending and try to squeeze in some space for savings. You can cut down expenses on gas, toll, parking, etc. Moreover, for professionals working from home, you can save the traveling costs and miscellaneous expenses.
Use this extra money as a financial cushion. In the coming days and weeks, you may need to rely on these savings. Reassessing your budget is the right step at this point.
Try to Invest More
We highly discourage you from selling your investments. Because of the ongoing economic crunch, you might be tempted to sell them. Many investors are witnessing their portfolios face a value decrement.
If your position allows, try to invest more in investment accounts and add more to your retirement savings. You might think that investing is not a possible option currently. However, this is a long-term measure.
If we go by history, the stock market will eventually rebound. Look for profitable financial schemes and allocate your funds there.
Refinancing Mortgages
The Federal Reserves are cutting the interest rates. Well, this is good news for people who own a mortgage. The interest rates have hit an all-time low. At this time, you should consider refinancing.
A tiny drop like 0.5$ also can save you thousands of dollars on the mortgage. We also recommend you consider shortening the term of your mortgage. For example, if you have 18 years to pay out on your home loans, refinance them to 15 years.
By paying off the mortgage faster, you can save more money.
Diversify the Investments
If you are an investor with a diverse portfolio, you can benefit from the situation. Besides, it’ll help you bounce from the difficult phase. Different types of assets function well in different scenarios. Having various investments will shield you from the risks.
For instance, gold prices were stagnant for an extended period before they took a hike last year. On the other hand, when the gold was static, the equities were soaring high. When the equities crashed, gold offered terrific returns to the investors.
Try to rebalance your portfolio whenever the assets fluctuate. In this way, a diversified portfolio can help you spring back from market crashes and volatility.
Financial Lessons to Take From COVID-19
COVID-19 left some unsettling lessons for people. However, if you see the situation like any other recession, there’s a lot to learn. Amidst these challenges, here are the lessons every personal financial planner should remember:
Minimal Consumer Credit
Many people commit 50% or more of their monthly income for replaying EMIs and loans. However, with the possibility of facing pay cuts and job loss, paying these credits would be difficult. People might struggle to carry out their daily expenses while fulfilling the loans.
Many states across the world have given temporary relief on loans. However, this is not going to solve the challenge. Along with the people, the entire credit industry is also facing challenges.
The COVID-19’s most valuable lesson is to minimize consumer credit as much as possible. Most financial experts suggest that the credit payments should not exceed 25-30% of your monthly income. Make sure that loan repayment doesn’t eat a chunk of your salary.
Investment in Health Insurance
Now more than ever, people need to understand the importance of health insurance. During the pandemic, there have been several reasons for people to opt for professional healthcare. People who are facing respiratory issues need life support.
The span of the treatment for the diseases takes about a few weeks. These healthcare facilities can be expensive. Moreover, not everyone might be able to afford it.
Without having proper health insurance, paying these bills can be burdensome for a few. This pandemic has taught us a precious lesson on the importance of health insurance in financial planning.
Reign in Your Spending
When the economy is thriving, your income will naturally increase. Households have a reputation for spending more, and industries are always keen on expanding their profits. However, the pandemic has bought the economy to a pause.
Naturally, it will halt your lifestyle as well. You might be stuck with your lifestyle and maintenance, and you might still have these habits. During this pandemic situation, you should try to sync your lifestyle with your income.
Make sure that you are not allotting the maximum of your monthly income for discretionary spending.
Personal Budgeting is Crucial
How can you possibly check your expenses and lifestyle when your payroll is increasing generously? If you want to achieve positive financial health, personal budgeting is a must. Personal budgeting will offer you an insight into your costs and expenditures.
By having a budget in mind, you can also plan your long-term financial goals. Well-planned finance will help you to make the maximum out of the situation. Especially during the lockdown, personal budgeting can help you drive through the problem.
Make sure to devise personal budgets while keeping the coming months in mind.
Avoid Short-Term Financial Decisions
Depressions and recessions hurt speculative and active investors tremendously. When the market is going through volatile swings, the overpriced entities will undoubtedly lose their values.
In a matter of a couple of months, the portfolio can shrink by 25-30%. The pandemic is bringing similar trends. Investors who entered a bearish market are seeing an increased decline due to lockdown and oil slump.
This situation leads us to one crucial aspect – how essential it is to opt for long-term decisions. Even if you purchased during a bullish market, don’t let the present dip spook you away. It is not ideal for making rash decisions currently as the market is all set to recover.
Opt-in For a Second Source of Income
Most of the professionals have been victims of unemployment or pay cuts during the COVID-19 lockdown. This situation proves the uncertainty of job security. Hospitality and tourism are industries that are heavily bleeding.
On the other hand, the manufacturing sector is in a constant war to keep up their income. To ensure that the income keeps flowing, it is better to take a side gig. It is a thoughtful way to sustain your livelihood.
Plan personal finances in such a way whereby you can include a second source of income. Like the investments, diversifying your job will help you stay afloat during a crisis.
The Role of Technology in Financial Planning Post COVID-19
The trend of online advice and virtual meetings from Robotic devices was much underway before the pandemic’s onslaught. People have increasingly started seeking a financial advisor online throughout zoom meetings.
Even after the effect of the pandemic subsides, this trend is likely to continue. Most importantly, this will allow the advisors and clients to work effortlessly regardless of their locations.
Deloitte, one of the topmost consulting firm, feel that the finance industry is crusading towards digitalization. However, it was the pandemic that spurred the active digitalization of the industry.
In the coming years, you will notice financial planning tools and interactive performance reporting. As people who are seeking wealth management services, you are likely to come close to the face of innovation.
Technology will not only ensure smooth workflow but also better security. However, it would help if you geared up for this technology-driven change. You’ll have to rely on online planning tools more than physical money consultant services in the upcoming time.
On the Brighter Side
Despite these harsh financial times, there have been positive changes in the process. It is undeniable that financial discipline is improving steadily. People claim that they are more aware of their financial status and strategies.
However, this brings us to the question of how long will this discipline sustain? Before the Coronavirus pandemic, more people deviated from achieving their financial goals. The current situation has forced people to take more interest in their finances.
A positive financial discipline will go a long way. Hopefully, with the tips mentioned earlier and lessons, you’ll have a better outlook on personal finance planning.
The Bottom Line
One thing is for sure; financial planning is not the same as it was before the pandemic hit us. The effects on financial planning are like a chain effect – one thing leads to another and then another. It’s never too late to take control of your financial planning.
Treat the pandemic as a wake-up call. Financial advisors will agree that the economic crisis is rapidly escalating even after the ease of lockdown. To protect yourself and your loved ones, you must exercise the best financial planning strategies.
It would be best if you had a full-proof strategy to plug the loopholes set by the pandemic. Without further delay, talk to a financial advisor and get your finances sorted. Managing your day-to-day finances and a bit more organization can help you recover fast.
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