May 10th, 2021
5 important financial lessons the pandemic has taught us
The coronavirus pandemic has financially impacted millions of Brits in recent months, and many households have had to tighten their belts as a result. The pandemic has also highlighted how vulnerable many people are to financial shocks.
If the outbreak and subsequent lockdowns have affected your finances, it’s important to take steps to ensure that it doesn’t happen again. Here are five important financial lessons the pandemic has taught us.
1. An emergency fund can be invaluable if you’re financially insecure
The lockdowns have been a difficult time for many people so, if you were made redundant or furloughed, you may have seen how important it can be to keep an emergency fund.
Keeping some of your wealth in cash can be a useful way to protect yourself when the unexpected happens, making you less likely to be affected by financial shocks. This can be particularly handy for younger people, who haven’t had as long to build up their wealth and so are typically more financially vulnerable.
If you don’t already have a fund set up, now may be a good time to start one. It can be invaluable for staying on top of your bills until you can get back on your feet when your life is disrupted. Without it, you may be forced to rely on expensive credit instead.
One of the best ways to build a fund is to go through your monthly expenses and find places where you can make savings, which you can then put aside for a rainy day. You can also use one-off payments to add to the fund.
2. Make sure you have an up-to-date will
While nobody likes to dwell on the thought of their own mortality, the pandemic has shown how unexpected events can occur at any time, which is why it’s important to have an up-to-date will in place.
If you were to pass away without a will, there is no guarantee that your estate will be distributed according to your wishes. This can cause significant trouble for your loved ones and may require an expensive legal battle to correct.
Furthermore, if you have a stepchild or you aren’t married to your partner, they may not inherit your estate if you die without a valid will in place.
3. Financial protection can help you to overcome financial difficulties
In the last few months, we’ve seen that illness can strike at any time, which can potentially keep you off work for an extended period. If this happens, you may struggle to pay your bills.
Situations like this are why financial protection is so important, as it can help you to overcome periods of financial difficulty without letting them impact your progress towards your goals.
For example, if you needed to take time off work due to a prolonged period of illness, you could benefit from income protection. This would pay a portion of your salary, after an excess period, so you wouldn’t have to dip into your savings.
Having financial protection in place can also have emotional benefits, allowing you to rest easy knowing that you’ll be able to overcome any financial shocks that you may experience.
4. You should think about the long term when investing
In 2020, the coronavirus pandemic and subsequent lockdowns significantly affected the UK economy and as a result, stock markets suffered. According to figures reported in the Guardian, the FTSE 100 fell by 14.3% during 2020, which is one of the largest downturns since the 2008 financial crisis.
During periods of financial instability, it can be easy to panic when you see your investments struggling. This can sometimes lead to knee-jerk reactions, such as panic selling.
While these reactions may give you a short-term sense of control over your finances, they can do significant long-term damage to your financial prospects.
When investing, there are always likely to be disruptions and the coronavirus pandemic is only one of them. One of the most important lessons we can take away from it is that you shouldn’t panic when the market temporarily falls.
In the long term, a balanced portfolio should be able to overcome any disruptions and grow your wealth to help you achieve your goals.
5. Seeking professional advice can help you feel more in control of your finances
When economic shocks occur, working with a financial adviser can be one of the best ways to manage your wealth and gain more peace of mind.
An adviser can help you to manage your investment portfolio in the most effective way, allowing you to rest easy knowing that you aren’t exposed to any more risk than you need to be.
According to a report by Royal London, clients who worked with an adviser to manage their finances felt more prepared for financial shocks and more confident about their future than those who did not.
The sense of control and security that you can gain through professional advice can be invaluable during times of financial uncertainty, which is why working with an adviser can be the best way to grow your wealth.
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The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.