In recent months, the coronavirus pandemic has had a significant impact on the UK economy and many people are feeling the pinch. It has also highlighted how vulnerable many people are to economic shocks.
If the economic disruption caused by the pandemic has affected you or a loved one, it’s important to prepare for the future so it doesn’t happen again. Here are five financial lessons that you can learn from the pandemic.
1. Keep an emergency fund if you are financially insecure
2020 was a difficult year for many workers, and if your children were made redundant or furloughed, you may have seen first-hand how important it is to have an emergency fund.
An emergency fund can act as a useful financial cushion when the unexpected happens so that you aren’t affected by short-term disruptions. This is particularly true for younger people, who tend to be more financially vulnerable.
If the pandemic has financially affected your loved ones, you may want to talk with them about setting up their own emergency fund. This can be invaluable in helping them to keep on top of their bills until they can get back on their feet.
If they don’t already have one, you may also be able to help them by going through their finances together to highlight areas where they could make savings. This money can then be paid into the fund for a rainy day.
2. Investing is for the long term
The economic impact of the coronavirus has significantly affected stock markets in the last 12 months. According to a report in the Guardian, the FTSE 100 fell by 14.3% in 2020, the biggest downturn since the 2008 financial crisis.
While it can be easy to panic when your investments are struggling, it’s important to remember that knee-jerk reactions, such as panic selling, can hurt your financial prospects in the long run.
When investing, there are bound to be short-term financial disruptions and the pandemic is only one of them.
Now that the market has largely recovered from the initial shock in spring 2020, it’s important that we take away the lesson not to panic when the market temporarily falls. A well-invested and diversified portfolio should be able to absorb any financial shocks, so your financial goals aren’t affected.
3. Make sure your will is up to date
Although nobody likes to dwell on their own mortality, the coronavirus pandemic has highlighted how unexpected events can happen at any time. That’s why it’s important to make sure your will is up to date.
According to a report published by Which?, more than half of Brits don’t have an up-to-date will, despite the potential financial risks that brings to loved ones if you pass away without one.
Without a will, there is no guarantee that your estate will be distributed according to your wishes when you die. Furthermore, it also raises a problem if you have a stepchild or an unmarried partner, as they may not be eligible to inherit if you die intestate.
Your loved ones may also have to undergo a lengthy and expensive legal battle for your estate if you do not have an up-to-date will that reflects your wishes.
4. Financial protection is invaluable
Millions of Brits have found themselves temporarily unable to work in the past few months due to the government’s implementation of national lockdowns, leaving many struggling to pay their bills.
This is why it’s important to consider financial protection, which can help you to overcome any temporary economic disruption without it affecting your progress towards your long-term goals.
For example, income protection can be invaluable if you have to take time off work due to illness. This form of protection would pay you a portion of your salary, after an excess period, so that you don’t have to dip into your savings.
Financial protection can also be useful for giving you peace of mind, knowing that you’ll be able to overcome any short-term disruptions that life throws at you.
5. Professional advice can be invaluable
Working with a financial adviser can be one of the best ways to manage your finances when an economic shock happens.
Not only can they help you to manage your investments to minimise risk, but they can also provide peace of mind by letting you know that your money is in safe hands.
According to a report by Royal London, individuals who worked with a financial adviser felt more in control of their finances, prepared for economic shocks, and confident about the future than those who did not.
This sense of security can be invaluable during times of uncertainty, such as the one we are currently living through, which is why seeking professional advice is so important.
Get in touch
If you want help implementing any of the financial lessons that the pandemic has taught us, get in touch. Please email firstname.lastname@example.org or call 0115 933 8433.
The value of your investment (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. The Financial Conduct Authority does not regulate will writing.