Three personal finance lessons to take from Covid-19

Things have changed for many of us. An while there are plenty of people who will come out of the 2020 coronavirus pandemic financially unscaved or even better off, many, including me will not have fared quite so well. To make it a learning exercise, I’ve gathered the three most important lessons we can all take away from the economic impact the response to the virus brought.

You need a bigger emergency fund

I am a big fan of Dave Ramsey’s baby steps. The very first step is saving a ‘baby’ emergency fund $1000, followed by the second step of knocking out all your consumer debt. But my view has been verified – $1000 (or equivalent in your currency) would have gone nowhere for a person who lost their job and has a limited prospect of picking another one anytime soon. Even with a generous social security system such person would simply end up going back into debt. If it feels like a false economy to you, you know where I am going with this.

Have an actual emergency fund saved up before you start snowballing (or avalanching) your debt. 3 months is good. 6 months is even better. Why? Because it’s easier to slow-pay a debt from your savings than magic money out for the same payments when you have no savings.

Live below your means

Not within your means, BELOW your means. Spend less than you earn. Grow your bank account instead of your lifestyle. You know all the cliché things already said about this in the financial community 🙂

I don’t mean live like a broke student when making a professional salary. Instead, give yourself a lifestyle buffer where you are living as if you were making 80% -90% of what you bring home. It’s not about tricking yourself into saving more either, it’s about protecting yourself against a bump in the road which results in your buying power dropping. For example, if you take your kids to Disneyland twice per year, send them to 3 expensive extracurriculars per week, drop £200 on a date night every Friday, spend every Saturday yachting as a family and out for a family meal on Sunday… how will you feel when you suddenly have to give something up?

Will you feel like you’re failing your loved ones because suddenly your kids have to give up 2 activities each and you have to downgrade to once-a-month £20 date night? Instead of setting the standard so high that it is going to plummet the moment your income dips or temporarily stops, set it where it is achievable and stable in the long term, even if you’re making less for few months. I know it sounds boring but trust me on this one – having to make sudden budget changes is way more miserable.

Don’t panic at every dip in the market

Stock market goes through ups and downs constantly. Don’t panic when the prices are dropping, don’t aim to change your whole investment strategy if they suddenly peak for a day. Stock market is a direct reflection of how people in general feel about the future. Is it looking great? Prices rise. Is it looking like you don’t get to leave the house for the next 6 weeks and your job is no longer secure? You get the picture.

Think long-term instead. And the long-term is more likely to go up.


Now you might be wondering why income diversification is not included in this list of my three biggest lessons. And the simple answer is that it is not possible in a number of circumstances. And if it is possible in your particular circumstances, you don’t need me to tell you that it’s a good idea to have more than one source of income. Whether you spend a lazy afternoon filling in online surveys while keeping one eye on the kids watching the long-promised Disney movie, or you make natural cosmetics for sale in your kitchen every evening, you’ve likely already doing something amounting to diversification.

Everything else worth saying has already been said, so stay safe and keep going.

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