The COVID-19 pandemic indeed caught the world off guard, revealing vulnerabilities in our preparedness, financial resilience, and healthcare systems. The widespread devastation caused by the virus and its subsequent waves led to unprecedented challenges. Lockdowns became a necessary measure to curb the virus’s spread, resulting in job losses and business closures that few could have foreseen.
The uncertainty lingers, raising concerns about the possibility of future lockdowns. In this context, there are crucial financial lessons we can glean from this crisis to better secure our financial well-being.
The first financial lesson is the importance of having passive income that exceeds fixed expenses. Passive income refers to earnings generated without active involvement. Investments, like rental income or dividend income from stocks, exemplify passive income sources. While building such income streams may require initial effort or investment, they continue to generate revenue over time.
In the wake of COVID-19, individuals were compelled to explore work-from-home opportunities. However, the key is to identify ventures that can provide long-term, recurring passive income. For instance, creating YouTube channels, blogs, or websites that attract traffic can lead to income through avenues like affiliate marketing. Even investing in stocks and patiently holding them for dividends can contribute to passive income.
Passive income, as you correctly pointed out, is not a quick-fix solution. It requires time and dedication to build streams of revenue that do not rely on daily labor. Active income, such as earnings from a job or business, is essential for immediate needs but is vulnerable to disruptions. Hence, the importance of passive income emerges. Achieving financial stability requires that passive income covers fixed expenses.
Fixed expenses are not limited to basic household needs like groceries or school fees. They extend to financial commitments such as EMIs for homes or cars. A stable passive income ensures that even if active income takes a hit, these financial obligations can be met without stress.
While money alone cannot buy happiness, its absence can indeed lead to stress and unhappiness. The COVID-19 pandemic has exemplified this harsh reality. Therefore, striving for passive income that secures your fixed expenses is a prudent financial move.
Developing a learning attitude is crucial on this journey. In a rapidly changing world, the ability to adapt and acquire new skills is paramount. Every profession, from the most complex to the simplest, can be learned with dedication. Hence, fostering a continuous learning mindset is vital for financial security.
Moving on to the second financial lesson: income security is the foundation of financial independence. Unexpected health crises, like those seen during the pandemic, can quickly deplete a lifetime of earnings. Therefore, planning for income security is essential.
Health insurance is a critical component of income security. The average cost of treating a COVID-19 patient can reach lakhs of rupees. Without adequate health insurance, such expenses can wipe out savings. Health insurance is not an expense; it’s an investment. Navi Health Insurance, with its extensive network of hospitals and quick digital application process, provides a reliable option.
However, it’s concerning that only a small percentage of people in India have health insurance. If you are among them, you are in a vulnerable position. Income security hinges on having health insurance with a high claim settlement ratio. This ratio reflects the insurer’s reliability in honoring claims.
Before the pandemic, many of us indulged in impulsive spending, often on items we didn’t truly need. Luxuries like designer watches, expensive shoes, or trendy clothing items frequently found their way into our shopping carts. Little did we realize that these purchases were often driven by psychological impulses rather than genuine necessity.
In the wake of COVID-19, our perspective on spending has shifted. People have become more conscious of the importance of financial prudence. It’s not about depriving yourself of luxuries but rather adopting a more considered approach to spending.
A simple yet powerful practice is the “72-hour rule.” When you feel the urge to make a non-essential purchase, wait for 72 hours before making the decision. This cooling-off period allows you to evaluate whether the item is truly worth the expense or if it’s just a fleeting desire. You’ll be surprised by how many times you realize that you can live without that luxury.
The lesson here is clear: every rupee spent on non-essential items is a rupee that could have been invested in the future. Small, consistent investments can grow significantly over time through the power of compounding. A 500-rupee purchase today might seem insignificant, but if you invest that amount wisely, it could potentially become 5,000 or even 50,000 rupees in the future.
COVID-19 has served as a stark reminder that financial security and preparedness should take precedence over impulsive spending. By curbing unnecessary expenses and redirecting those funds into investments, you can build a solid financial foundation for yourself and your family.
This brings us to the final financial lesson: cultivate the habit of investment. Investing is not just for the wealthy; it’s a practice that anyone can adopt. Whether you’re starting with a small amount or a larger sum, the key is to begin. Consider various investment options, such as stocks, mutual funds, or fixed deposits, and choose the ones that align with your financial goals and risk tolerance.
The beauty of investments lies in their potential to grow your wealth over time. As you consistently contribute to your investment portfolio, you’ll benefit from the compounding effect, which means your money earns money, and those earnings generate more earnings. This snowball effect can significantly enhance your financial well-being and provide you with the security and flexibility to face unexpected challenges.
Indeed, adopting a mindset of investing and living a life as if you’re broke can be a powerful financial strategy. The idea is simple yet profound: treat your surplus money not as spendable income but as a resource to build your financial future.
The concept is grounded in the belief that money should be actively working for you, rather than idly sitting in your account. When you receive any income, whether it’s your monthly salary or unexpected windfalls, the habit is to allocate a portion of it to investments immediately.
For larger sums, consider non-liquid investments like real estate, which act as a store of value and have the potential for long-term growth. These assets are not easily convertible to cash, discouraging impulsive spending.
On the other hand, for smaller, more regular surpluses, investing in liquid assets like stocks is a practical choice. Stocks offer the benefit of liquidity, meaning you can convert them to cash relatively quickly when needed. This liquidity provides both security and flexibility, as it ensures you have the means to handle emergencies or capitalize on opportunities.
The ultimate goal is to avoid leaving your money idle in low-yield bank accounts, where inflation erodes its value over time. Instead, by embracing the mindset of a broke person, you empower yourself to grow your wealth steadily.
Through consistent investment habits, you’ll gradually build a robust financial portfolio that can generate passive income, shield you from unexpected financial setbacks, and enable you to pursue your financial goals. Moreover, you may find that your circle of influence shifts, as you connect with like-minded individuals who understand the importance of financial prudence and investment.
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