COVID 19 pandemic was a wake-up call in several ways. From the personal finance perspective, it reminded us of many things that we were all aware of but hardly cared about. For example the importance of having insurance or living on a budget. It is crucial that we take our learning from it and inculcate in our day-to-day lives.

Here we will talk about the 5 crucial personal finance lessons that we learned during the pandemic and what should we do to avert such mistakes in the future.

Here, are the 5 lessons we learned from the pandemic:

Lesson 1: Having an emergency fund is essential
In uncertain times, having an emergency fund is a huge financial support. As the name suggests an emergency fund is money kept aside for emergencies.  And during the pandemic, it could be a medical emergency to losing your job.

For example,  for someone who has been laid off due to the pandemic, he/she might be living off their savings if he/she does not have an emergency fund.

So, when times are good keep money aside as emergency funds. And it is a good practice to keep at least six months of your expenses aside for it. Also, make sure you count all your expenses including EMIs while calculating this number
Also, do not let your emergency corpus lie idle in a savings account; put it in an instrument that gives you a little more returns, for example, Liquid Mutual Funds. Remember, during an emergency, every penny counts!

Lesson 2: Do not rely on your employer’s health insurance plan, get your own
Due to the pandemic, a lot of people have lost their jobs. And under such circumstances, if you or any of your family members are required to be hospitalized it would mean paying from your own pocket. This can put you in further financial trouble. Meanwhile, if you have a health insurance policy of your own, it would cover such risk.
It is always good to have a health insurance policy of your own even if you are covered under a corporate health policy.

Lesson 3: We can all save more than we think we can
After the outbreak of the COVID-19 pandemic, we were forced to stop eating out, shopping, going out for movies, theatre, concerts, etc. And this has given us the scope to save a lot more money.
Now, these are extreme situations and it is not normal to go on living like this. Once things are normal again, we will once again start going out and pick up from where we have left. However, it is extremely important that we keep the habit of saving more in the future as well.

Lesson 4: Diversify your investments
An investor with a diversified portfolio not only could ride through a difficult time but could actually take advantage of the situation. Different asset classes perform well at different times and having them in your portfolio means the risks are covered.
For example, gold prices were stagnant for a long time before they started going up last year. At the same time equities were running up when gold wasn’t and then they crashed while gold delivered amazing returns.
However, how much you should put in each asset class should be a function of the risk you want to take and not on the basis of returns it is generating right now. Plus you also have to rebalance your portfolio whenever any asset class moves up or down and changes the ratio.

Lesson 5: There is no guaranteed future income
If you have a job and are not going through any severe salary cut situation, count yourself as lucky. Looking around, you will realize many of your friends and acquaintances have been laid off and are living off their savings. Do two things act as lifesavers under such circumstances? not having any high-interest debt, and knowledge to live on a budget. And we will tell you exactly why.

• Avoid high-interest debt: High-interest debt, like credit card or personal loan, is harmful to your financial health even when you have a regular paycheque in your hand. Then think how damaging it can be for finances when you are out of a job. If you are unable to pay on time, the piling interest rate can increase the debt amount further. And it would take years for one to get out of such debt. So stay away from high-interest rate debt. And even if you are using a credit card, spend as much as you can pay by the next month.
• Living on a budget: This practice helps in the long run. It makes you aware of what your basic needs are and can pull you through the tough times. We all knew this but with a regular salary coming every month we never thought it to be an absolute need. Things changed after the pandemic. With job losses and severe pay cuts, we were all forced to live on a budget. However, if you have always been following a budget, the changes were easier for you to adapt as compared to someone with an immense spending habit.

Bottom Line:
Financial prudence is all we need to sail through during uncertain times. And believe it or not, being financially prudent is not something impossible to achieve. All you require is to be a little more organized with your day-to-day finances.