What COVID-19 Made Us Realize About Our Finances7 min read
Bill Gates did warn the world about a pandemic that would greatly impact the global economy. Still we were all caught unprepared when the new coronavirus struck globally this year. No country was equipped well enoughâ€”technologically and financiallyâ€”for a health emergency of such magnitude.
In the Philippines, the Enhanced Community Quarantine came relatively early and rather abruptly. The temporary closure of businesses and mass transport, among other things, was necessary in order to contain the spread of the virus.
Still, it made a serious dent on our lives. We learned how material things and other excesses could lose value in an instant; in the end it’s safety and your family’s life that matters most.
Here are a dozen other lessons that COVID-19 made us learn about our finances.
1. Your savings and resilience are not enough.
Based on a 2017 Financial Inclusion report released by Bangko Sentral ng Pilipinas (BSP), only 3.7% among deposit account holders have more than P500,000 on their bank balances. 13.8% keep balances ranging between P40,000 to P500,000 while 20.4% maintain P5,000 to P40,000 on their accounts.
What about more than half of all the deposit account holders? The majority, or 62%, only save P5,000 and below on their bank balances. That P5,000 do not last long, especially if you live in Metro Manila and other cities where the living expenses shoot high.
Your paycheck may be added on that amount, but consider these factors: loss of employment due to the pandemic, a family to feed, fighting for the scarcity of goods, and the indefinite duration of ECQ. The bitter truth says your savings are not enough, and Filipino resilience is not a safe cushion against being financially unprepared.
Saving 20% every month from your payÂ is not through moods, which is fickle. Make it a habitÂ directed byÂ your goals andÂ attached withÂ careful budgeting.Â
2. Budgeting is a survival skill.
Budgeting is dividing your money into portions and designating where to spend each. Itâ€™s not a mere pastime exercised by older generations, but a way to make money work for the household throughout a period. Itâ€™s allocating the funds for non-discretionary (essential goods like food, shelter, bills) and discretionary (eat out, holiday travel, new gadget) expenditures.
Being able to stick to your budget plans, you are well prepared to survive like this time of ECQ, where there is more money being shelled out than coming in. You spend well on basic goods and yet you have more at hand.
You may hear about many budgeting principles, but really itâ€™s not the method that matters. Itâ€™s about turning it into a habit and eventually into a skill. Itâ€™s like limiting yourself to going to a fancy coffee shop because youâ€™re brewing the future to run a whole branch.
4. An ’emergency fund’ serves its name well.Â
Life is tricky but you donâ€™t want to be surprised when the inevitable suddenly strikes you: an accident, illness, or unemployment can occur at any point in time. The spread of the new coronavirus that gave birth to a global health and economic issue is an unexpected circumstance that emergency fund plays a role.
By building an emergency fund separately, you spare your savings from being used up immediately. Since the ideal emergency fund is worth three to six months of your salary, you are prepared in the face of sudden suspension of work that results in no pay.
A COVID-19 Financial Preparedness survey conducted by eCompareMo revealed that 71% of the 1,706 respondents were financially confident amid the crisis but has no emergency funds. If the enhanced community quarantine lasts for a few months, people (especially those who have lost their jobs due to the lockdown) will be at the mercy of either borrowing money from others or subsisting on relief goods.Â
If you donâ€™t have an emergency fund, itâ€™s never too late to start working on it. Weâ€™ve published a piece on how you can create an emergency financial plan that doesnâ€™t just focus on saving but also on other things that can come in handy in times like the COVID-19 pandemic.â€¯
And if youâ€™re worried that whipping up an emergency fund is just for young adults, donâ€™t worry. Weâ€™ve tackled previously how you can start one even when youâ€™re in your 40s
5. Being debt-free lessens the anxiety.
Due to community quarantine, resources become scarce. We have witnessed how people give in to panic-buying to secure themselves goods before they run outâ€”a contest of early birds catching worms that is all about spending. Since the loss of employment becomes normal, no money replaces what you have spent and it may also grow thin.
As such, it can turn to a situation where you will borrow money or you will be asked to pay for what you previously owed.
Unpaid debts, especially from a casual transaction, disrupt your budget plan and add stress to the current situation. It also means that lending is also gone. The ECQ has made us all, lenders, borrowers, and anyone debt-free in need of funds available in our hands.Â
6. Having more than one source of income really pays more.
Community quarantines and lockdowns resulted in businesses temporarily ceasing their operations. Others adjust their workforce to minimize risk and loss.
All of us are affected by flexible working arrangements or suspension of work, and it’s uncertain how long it will stay this way.
You may be one of the retrenchment casualties. Itâ€™s a time to realize that job security is also fickleâ€”a flaw you could have prevented.Â
Having multiple streams of income is a concept we keep hearing about, and the COVID-19 pandemic revealed that earning aside from your day job builds your savings quite faster than having just one. It also cushions job loss, if it happens.
Getting a freelance job or side projects is one form of multiple sources of income. Having a business is another. Furthermore, engagingÂ inÂ investments on stocks and bonds is also a passive income that is alien to most of the Filipinos.Â
If you donâ€™t have money that grows even when youâ€™re asleep, your goals will be a little far from you. Worrying overÂ theÂ loss of incomeÂ is another result that can happen again even after the novel coronavirus.Â
7. Health insurance is not overrated.
The common reasons for not getting health insurance are: â€œI canâ€™t afford it.â€ â€œI am healthy.â€ â€œI have other priorities.â€Â The bottom line is that people see it as an additional expense and so, unnecessary.Â
However,Â the coronavirus disease, invisible and unheard of,Â spread in an exponential mannerÂ that shookÂ even the best universal healthcare systems of other countries.
It is inevitable that the Philippines, with little preparation and no reliable healthcare system other than PhilHealth, will also be ravaged by the viral disease. This has immediately put a spotlight on the importance of health insurance.
Studies find that older people are more vulnerable to COVID-19, and being insuredÂ is a huge advantage compared to those who donâ€™t have one.Â
It’s good knowing, too, that in times of a national health emergency, health insurance providers are generous enough to adjust their benefits packages and payment deadlines.
8. Opportunities lurk in dark times
The coronavirus pandemic isnâ€™t just a global health emergency. Itâ€™s a Pandoraâ€™s box that opened a lot of problems that even the First World Countries cannot handle. The economy is crippled and the market has crashed. Stocks go into capitulation or selling frenzy since the middle of March.
The low price is an opportunity to buy units while the price is low, and missing this chance is what you might regret in a few years. There are risks you need to calculate, including high volatility and steeper declines. However, things will go back to normal sooner, if not now, and youâ€™ll be glad you made things work for you.
What comes next?
Studies are continuously being conducted to understand the nature of the virus, flatten the curve through physical distancing, and hopefully create an antibody. But nothing is certain as of the moment.
There are also predictions of what the world will look like after this pandemic, which will likely affect globalization. All of these things in the big picture can affect you as an individual, so itâ€™s best to learn how to manage your finances wiselyâ€”while you have the time.