This article by Ryan Guina first appeared on Military.com, the premier resource for the military and veteran community.
While this pandemic is unprecedented, it can teach us financial lessons, no matter what lies ahead.
The novel coronavirus outbreak is unlike anything we have experienced in our lifetimes. While the full extent of the outbreak is yet to be determined, we can say with certainty that this pandemic will bring changes to the way our government and other governments address future emergencies of this kind.
1. An Emergency Fund Is Essential
Emergencies can happen at any time and, by definition, they will almost always be unexpected. That is why having a well-funded emergency fund is essential. How you define an emergency fund is up to you. But at the minimum, it's good to keep at least $1,000 in cash set aside for a rainy day. However, this is one time when more is better. Some financial experts recommend keeping three to six months of living expenses in your emergency fund.
Takeaway: Start an emergency fund as soon as you can if you do not already have one. Transfer money into a savings account that you won't touch except for emergencies, and leave the money there. If you don't have one, set up an automatic transfer to fund your account each month. It will add up quickly, even if you can afford to put away only a small amount each month. You'll be glad you did.
[MORE RESOURCES: MOAA.org/Coronavirus]
2. Emergency Preparedness Also Means Having Extra Supplies on Hand
This pandemic and the nation's response caught many people off guard. It's not hard to find pictures of empty shelving at grocery stores, big-box warehouses such as Costco and Sam's Club, and other stores that sell food and other household items.
The world's supply chains will tighten up over the next few weeks while nations close borders to try and stem the spread of this disease. That doesn't mean you need to rush out and hoard food and supplies. But it does mean that you should be aware of your family's needs. Make sure you have enough food, medicine and related supplies to get you through the next few weeks.
Having some extra room in your budget will allow you to stock up on extras that you might have normally waited a few weeks to purchase.
Takeaway: Going forward, it may be a good idea to ensure that you keep a decent supply of shelf-stable food staples on hand, along with sufficient medicines and medical supplies to get you through an emergency.
- Centers for Disease Control and Prevention Coronavirus Website
- CDC Advice for Higher-Risk Individuals
- VA Coronavirus Website
- TRICARE Coronavirus Information
- DoD Coronavirus Response Website
- Health.mil Coronavirus Information
- Military OneSource Coronavirus Resources
- National Institutes of Health Coronavirus Information
- From MOAA: What You Need to Know About the CARES Act
- Latest Coronavirus News from Military.com
- Latest Coronavirus News from Military Times
3. Debt Is the Killer of Financial Dreams
We are just now seeing the impact of this outbreak. Hundreds of major venues throughout the nation have closed for the foreseeable future -- museums, concert halls, sports stadiums and more. Some states have even mandated the closure of bars, cafes and restaurants. All of these are necessary to help slow the spread of this disease. But it also means many people will be out of work.
This is where having too much debt comes into play. The greater your fixed monthly expenses, the less margin you have during an emergency. Excessive debt can cause severe financial problems in the event of a job loss or even decreased income from working fewer hours.
Takeaway: Work to eliminate debt as soon as possible. Weather this upcoming storm first, if need be. But after the all-clear siren sounds, work at chipping away your debt.
4. Lowering Your Fixed Expenses Can Have a Huge Impact on Your Budget
One way to get out of debt more quickly is by lowering your fixed expenses. The Fed has dramatically lowered interest rates since this outbreak started. This means it should cost less to refinance loans such as your home mortgage, credit card balances, auto loans and student loans.
You will still need to qualify to refinance, based on your credit history and credit score. But if you qualify, refinancing your loans can help you save hundreds of dollars per month in interest payments.
This can do one of two things: It means you have more cash flow each month or, if you make the same payment toward your loan, then more of your payment will go toward reducing your principal, reducing the amount of time it takes to pay off your loan.
Takeaway: Take time over the next few weeks to see whether you can reduce your payments by refinancing your loans or by transferring your credit card balance to a zero balance transfer credit card.
[RELATED: More Financial Resources from MOAA]
5. Insurance Can Be a Lifesaver
Insurance serves one major purpose -- to shift financial risk from yourself to another party. Simply put, insurance helps you avoid a financial expense that you otherwise would not be able to afford.
Being properly insured is essential during times of financial uncertainty. This includes all forms of insurance -- health insurance, life insurance, auto, home, renter's etc.
Takeaway: Take time to review your insurance policies to ensure you have sufficient coverage. If not, get insurance quotes and get coverage. You can't afford to go without insurance at a time like this.
6. Stocks Are for Long-Term Investments Only
The stock markets are extremely volatile right now, and this volatility will likely continue for the foreseeable future. If you haven't sold your stocks, then you may wish to hang onto them. Selling at depressed prices may only serve to lock in losses.
If you have a long-term horizon, you may be able to wait this out. Look at the most recent bear market during the 2008-2009 economic crisis to see how stocks fared. While we don't have a crystal ball and we can't predict how or when stocks will rise, we can assume that stocks will rise again at some point, even if it doesn't feel that way now. Take a moment to look at the gains that were made after stocks bottomed out during the Great Recession. You don't want to miss out on similar gains.
Takeaway: Only invest with money that you don't need in the immediate future. Stocks can be volatile, and you may lose money in the short term. But in the long run, stocks tend to provide greater returns than most other types of investments.
None of this is doom and gloom. Our country and the rest of the world will weather this storm. But there will be hardships and inconveniences in the meantime.
Hopefully, these lessons learned can help all of us be better prepared for the present outbreak and for any future emergencies that may arise.
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