As the dust settles on the shock of COVID-19, and the social isolation rules start to relax a little, it is time to reflect on what we have learned from going through this experience.
While there have been outcomes good and bad, with much stress and rush to change, one of the biggest things to become obvious is that individuals or companies that did not have adequate savings have suffered the most by far.
While it has affected everyone, the people who have been thrust into the most difficult situations are the ones that have immediately lost their livelihoods and their security. We have been incredibly lucky that Australia has been able to deliver a comprehensive support package for people in the crisis, but the reality is in 5 months’ time that support will be withdrawn, and people will be expected to be back to normal.
While thousands of Australians have lost their jobs, even more of us have been forced to work from home, and also have our kids at home for homeschooling. The pressure this puts on the family unit is only made worse with the pressure of mounting financial doom – and there has been a scramble in both small businesses and individuals to try to understand how long they can last, with the cash they have.
It seems the pandemic has caught so many of us off guard. But what it has also done is give us a tide line for our money – a rule of thumb that most people can aim toward over time to make sure if anything ever happens again, they are secure.
The government support package lasts six months in total – and it appears that six months is a rule of thumb for the time needed to pivot, take stock, and head in a new direction. Which is why six months’ worth of savings is a mental must to feel secure in a world that is changing faster than ever before.
The first step toward getting this six months is to understand how much you need on a six-month average. I say this because you cannot think it is just a replacement for your monthly salary. Do you put things on credit card? Do you forgo savings to spend thinking you will catch up next month? Do you have big bills that come in quarterly? Like electricity? If so then you need to average out all costs over a six month period, to truly understand what covering your life or business for six months looks like.
Of course, saving is always a choice, and some of us don’t have the luxury of paying for anything beyond essentials. But for many of us, we have lived beyond on our means and been caught in an unexpected turn of events. I imagine the task of saving and building security will be more important than holidays and material goods in the next few years, due to COVID19.
Once you have your six months of savings, you can start thinking about other things. But there is no point distracting your financial goals if you don’t have your emergency savings in place. In times like this, cash is king.
So take stock of your own financial life before things return to the new normal. Understand what you need, and set yourself a goal. Because what you are really doing is buying yourself peace of mind. And you deserve it.
Until next time,