Financial Intelligence – Key during Coronavirus Crisis
The economic effects of the COVID-19 outbreak are clearly visible now. Financial markets collapsing across the world, manufacturing sectors coming to a standstill, increased unemployment and rising jobless claims.
Basically in the short term i.e. till 2020 end, the economic indicators are not very encouraging.
So how global economy got affected?
The effects of Coronavirus is more like a storm. Because like it or not, the pandemic and the measures to contain it will have a side effect on different scales, especially on individual’s personal finance.
But, on the other hand, it has given valuable opportunity to raise awareness about the financial decisions we make on a personal level. The lesson was, is, and will be hard, so we better learn as much as we can from it.
What financial lessons Coronavirus taught everyone?
We can and should learn that there is no worse mistake than having a passive attitude towards our finances. There is no decision more costly and dangerous than not seeing the future. Because while it is true that no one can completely avoid the consequences of a pandemic, it is also true that it is possible to be better prepared.
If after all this, we do not learn that saving and diversifying our sources of income are fundamental to our financial peace of mind, we would be pushing ourselves into a terrible future.
How savings should be done now?
We need to look at savings from different perspectives, specifically from each individual’s situation.
For example, if you don’t have an emergency fund and, on the contrary, have credit card debts or bank loans that charge high interest rates. Then in such a scenario, saving for transferring or consolidating debts is important. That is, look for alternatives to pay less interest, because as long as you keep paying loans or credits with high rates, it will be hard to create my emergency fund or save for child’s education or whatever the objective is.
Then, saving can and should be interpreted in different ways, because in a favorable environment it can be understood as a mechanism to accumulate money for a certain purpose, while in an environment like the current one, it can be understood as a mechanism to reduce your decapitalization, especially due to debt.
How to manage debts in times of crisis?
The first step is to stay calm. There is no point in panicking or taking radical measures such as not paying them. Managing debts in crisis requires calm, maturity and much analysis.
If you have credit cards or loans, find out how much you owe, what interest rate is being charged and what term. And then prepare a plan to get out of this contingency which requires financial intelligence.
Everyone should take advantage of this contingency to plan for financial security, recognize the importance of having an emergency fund and seek different sources of income. And above all start making decisions today, because we have already seen that things can change very quickly, just last month many people had “secured jobs” and now they are filing jobless claims.
Today more than ever we must understand that the worst mistake we can make is not to take care of our relationship with money.
This article has been written by Chandra Mehta.
Chandra is a seasoned banker with 35+ years of experience in banking and financial services industry. He’s a retired banker and has served as Chief Manager and Assistant Vice President in State Bank of India/or its subsidiaries. He has authored many articles on this site (allonmoney.com).