In 2020, we lived through a once in a century kind of health crisis. A crisis that was faced by the whole world collectively.
COVID-19 reminded us of the importance of basic human actions like a handshake or enjoying a meal at your favourite restaurant.
It was also a wake-up call for human beings to be more considerate of the environment, self-care and attaining financial independence.
Here are 5 of the many personal finance lessons we learnt this year:
1. Need for various insurance covers
COVID-19, cyclones and even floods, Indians as well as people around the world faced unexpected natural events.
Consequentially, 2020 taught us that:
- Adequate health insurance is important. With a large number of people losing jobs this year, we learnt that one cannot simply rely on the employer's health insurance plan. If you lose your job, you will lose your health cover as well.
- It is important to make sure your whole family is covered under the health insurance plan.
- One should look beyond compulsory third-party damage covers when it comes to vehicle insurance. Damage from floods and cyclones are not covered under these plans.
- One needs their home and business places insured against natural calamities or accidental fires.
2. Emergency fund
At the peak of the pandemic panic, hospitalisation of COVID-19 patients in a private hospital was uber expensive. Families were split between saving their loved ones and securing their future finances. Apart from the health crisis, Indians faced high unemployment.
Unexpected events like these shed light on the importance of having an adequate emergency fund. This money needs to remain in liquid form (in a savings account or a liquid fund) for easy access, rather than being locked in an investment scheme.
3. Save money for an uncertain future
It is important to cultivate a habit to live on a budget and be financially independent. During the pandemic, while some lost their jobs, others feared the possibility of losing them. Some companies announced pay cuts, postponed salary hikes and even delayed salary payments.
The pandemic taught us to adapt to living without external help for domestic activities and not spend unnecessarily. Planning a budget beforehand by clearly setting out one's basic needs can help build savings for the future and provide additional funds to make smart investments.
4. Avoiding debt
Avoiding all unnecessary debt like large credit card bills or personal loans can reduce your financial burden if you happen to lose your job from an unexpected event like the COVID-19-induced economic slowdown. Until you manage to find a job that pays enough to meet household expenses as well pay off your debts, the interest liability on your loan will keep piling on, adding to your financial constraints.
5. Diversifying investments
Each asset class performs differently at different times and having them in one's portfolio means the risks are covered.
The motive is to not put all your eggs in one basket.
In 2020, those who had invested in gold before the pandemic clearly won. In November 2019, gold prices in India were looming around Rs 38,000 per 10 grams, while in August this year, rates rose to an all-time high of Rs 56,191.
This year, the pandemic taught everyone the importance of safe-haven assets. Indians too have preferred precious metals as an investment, looking beyond festive or matrimonial purchase.
Between July and September this year, demand for gold jewellery fell 48% year-on-year, to 52.8 tonnes, from around 101.6 tonnes, a year earlier, as per the World Gold Council. However, demand for the yellow metal as an investment, rose 52% to 33.8 tonnes, on a year-on-year basis; a clear indication that Indians opted for gold in ETF form over jewellery.
Besides adding gold and other precious metals to one's investment profile, diversification should also be made within the equity segment. Stocks in the pharma and FMCG sectors gained amid the pandemic while finance companies, banks and oil marketing companies suffered.
The decision to put money in different asset classes and sub-categories within an asset class should be looked at with a purpose to balance risk rather than on the basis of what is generating returns at the moment.
The article is purely informational and is not a solicitation to buy, sell in securities mentioned in the article. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author do not accept culpability for losses and/or damages arising based on information in this article.
About the author
Olga Robert is an M.Com graduate covering equity markets and personal finance for nearly three years. Her interests include tax planning, equities, DIY personal finance management and government schemes.