5 Personal Finance Lessons from 2020
With one of the biggest pandemic crisis in the last 75 years, this year has taught us many hard learned lessons, including financial ones. As the year draws to a close, it’s right to say that tough times are also great teachers. We’ve all learned something about the social, political, physical and environmental forces that have affected everyone. And, in some ways, our lives have changed. And Covid-19 has increased the importance of being financially prepared at all times to withstand any adverse circumstances. But as an investor, what lessons have we learnt from 2020?
Here are 5 important personal finance lessons that Net Brokers would like you to consider:
1. Importance of an Emergency Fund:
You never know when you might have an emergency or lose your income, and Covid-19 is the perfect example of why everyone needs emergency savings. If you do not already have an emergency fund, start by setting up a monthly SIP that automatically allocates funds to a low cost, easily accessible investment account. You can begin by saving whatever you can afford with the aim to build it up to six months’ worth of living expenses. Investors should keep the emergency funds in low-risk and liquid fixed income assets.
2. Stay Invested:
The first few months of 2020 reminded us that markets don’t always go up. Seeing your hard earned savings going down with the stock market is quite scary, but it’s the time to not get tempted to book your losses by withdrawing at the bottom. By end of 2020 market has recovered well and is at all-time high and the rollercoaster ride is an essential reminder to investors not to try time the market and about the importance of sticking to your long term investment goals. Patience & discipline can pay wonderful rewards in the long run.
3. Benefits of Portfolio Diversification:
An investor with a diversified portfolio not only could ride through the difficult time, but could actually take advantage of all type of situation. Different asset classes perform well at different times and having them in your portfolio means your risk will be spread and minimised. Your investment portfolio should ideally reflect your planned asset allocation & current risk appetite appropriately. Rebalance and diversify your portfolio as per the circumstances and your risk profile.
4. Save, Save & Save More:
Outbreak of Covid-19 and its impact on economic situation of every individuals has clearly taught us the difference between the essential, necessity & luxury of life. Living without going out for movies, without eating at lavish restaurants is not that difficult after all! This has given us a scope to cut our expenses on not-so essential things and focus on saving more. 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 your long-term financial goals. All the luxuries in the world can’t make up for the peace of mind financial freedom & security brings.
5. Importance of Professional Support:
At the start of 2020 most financial plans did not account for a virus and the economic impact of lockdown on it. But when your financial plan goes out of the window, get professional support and help. Building a relationship with a financial expert is one of the best investments you can make for success of your financial plan. Having someone to help you navigate the complex and technical world of finances can make your journey a lot less bumpy and more enjoyable. Find someone you trust and can rely on for support during such challenging times.
Covid-19 caught all of us off guard, however this is also an opportunity to learn from it and be better prepared for any adverse situation in future. So start preparing today by creating adequate emergency fund, staying on your investment course and saving as much as you can.
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