We will all eventually be on the other side of this COVID-19 crisis. Some businesses will have survived, even flourished, while others will have had to shutter their doors. There are over 30 million Americans who had to file for unemployment as a result of the pandemic, in addition to countless people who lost investments in the stock market. This is a scenario that many people never imagined, but now we need to think very seriously about how to prepare for the very real possibility that it might one day happen again. Many lessons need to be learned from this.
One the smoke clears, we will all be going back into the world a little financially bruised and a little wiser. One common theme seems to be don’t get too overconfident, even if the market is flourishing and unemployment is down. We have all seen what can happen within a few short weeks. Looking ahead, people are being advised to not accumulate too much debt, especially credit card debt because of the exorbitant interest rates. In addition, people shouldn’t overspend beyond their means or make unsafe financial decisions. This includes the lure of riskier investments in return for a possible higher return.
Another lesson learned from this crisis is that we all need some type of emergency fund. This is not the same as a rainy-day fund, which is usually around $2,500. An emergency fund is around $5,000-10,000 and should be able to sustain you for a few months. Naturally, this is not a reality for many Americans, 40% of whom can’t afford a $400 sudden emergency.
Now, more than ever, finding multiple sources of income is becoming highly encouraged. This, again, isn’t possible for everyone, but the advice is to follow the adage “hope for the best, but prepare the worst”. A side hustle can be a great way to save money for future unknowns, and some might even be maintainable after your main source of wages is cut off.
When it comes to planning for retirement, another piece of advice is to avoid panicking and selling off stocks as soon as the market starts to decline. You should think of retirement as a long-term investment that you need to leave alone. Don’t make any short-term, hasty decisions because of a temporary setback.