Financial Lessons of Covid-19

What a crazy year!  I know it isn’t finished yet and we are not out of the woods but we are far enough along to stop and reflect on what we can learn from this unprecedented time.  Here are some lessons that we should consider.

Anything Can Happen at Any Time

Nobody can predict what strange things can happen in our world.  Just looking for multiple examples of that in 2020 is easy.  Some may have been saying we should prepare for a pandemic over the years, but generally for most of us, this came out of nowhere.

We are still in the midst of it and we can’t predict with any confidence how all this will turn out - what and when things will be open, or close, or get cancelled, or re-open, or re-close, or what the government will do, or how long things will get back to normal, or at least the “new-normal.”

The point is we didn’t see this coming.  And there will be other things in our future that we don’t see coming.  

The only certainty is that there will be uncertainty.  All you can do is prepare the best you can with the information you have.  And part of that information or assumption should be that things can (and will?) get crazy with something you don’t expect.   I’m not saying to dwell on the uncertainty, only to know that uncertainty is going to happen and that you will be thrown curveballs and the occasional knuckleball.  Accept that fact and prepare as best you can.

The Importance of an Emergency Fund

Many of us financial planners have been emphasizing for a long time that a robust emergency fund is very important.  Hopefully Americans will see the importance now.  If you have been one of the fortunate ones who have not needed it up to this point because you haven’t lost your job or because of the stimulus packages that have been enacted, count yourself lucky.  And make sure you look at your cash reserves today. 

If you are behind the 8-ball start building your emergency savings now.  Your family’s economic situation still might be negatively impacted with this current situation.  If not, you will be well prepared for the next negative event thrown your way.

Protect Yourself and Your Family with Life and Disability Insurance

There is nothing like a global pandemic to force you to ask yourself some of the big questions in life.  Many of us have gone there and asked, what if I get this virus?  What if I get sick?  What if I die?  

It might not be healthy to dwell on these thoughts too long but it is important to think about them and be prepared for the unexpected.  What if you do die?  (Regardless of the cause.)  Will your family be okay financially?  If you have people depending on your income, you likely need life insurance.  Many have some life insurance coverage, but not enough.  Is your family fully protected?

Along the same vein, it is often the case that people have life insurance in place but haven’t thought of the need for disability insurance.  What if you get sick or injured and can’t work?  Your family still must go without your income.  How many months of this would put your family’s finances in ruin?  

This is why disability insurance is important, especially long-term coverage.  Many have it at work as an employee benefit, but because it likely only covers 60% of their income and also will likely be taxed, they still might need additional coverage.

If you haven’t reviewed whether you properly are covered for these events in a while, now is the time.    

The Market Will Go Down and Then Recover

The stock market declined about 35% in early 2020 at a very rapid pace.  I sure didn’t think that it would recover as fast as it did.  (The market is toying with new highs as I write this.) But I was confident that it would recover.

There was a lot of fear about the market in March and April of 2020.  Some got out.  And locked in those losses as the market rebounded in a fury.  

I have no idea what the market will do from here.  It could go down rapidly again if the economy has a slow recovery from here.  But, again, history says that those who are patient and don’t panic are rewarded.

There Will Be Opportunities

When bad things happen in the economy, there will be great opportunities if you are in a position to take advantage of them.  There always is.

If you had a properly funded emergency fund and had some extra cash when the market took a 35% nose dive, you had an opportunity.

If you have a mortgage maybe it made sense for you to lock in historically low interest rates to lower your payment or decrease your loan term.  

If you had your financial foundation strong and you received a stimulus check you had an opportunity to do smart things with it that provided opportunity or fulfillment for your family.

There are always opportunities during bad times.  If you were not in a financial position to take advantage of 2020 opportunities I encourage you to get your financial situation in shape so that the next time (there will definitely be a next time) you are able to take advantage of whatever those opportunities will be.

Where do you stand?

Now is the perfect time to reflect on these lessons and take measure on how you will be able to weather a storm next time or if things turn for the worse going forward.  

Ask yourself the hard questions and be honest with yourself.  Then take the action necessary to put yourself and your family on a stronger footing.  Your future-self will surely appreciate that you did!