Positive financial lessons drawn from effects of the pandemic

Here we are, in our third Covid year and the reverberation of the global pandemic has been a wake-up call for many of us when it comes to our finances. For some, the financial future remains uncertain while others have been forced into different ways of living and working.

There are, however, many important financial lessons the pandemic has taught us when it comes to our money and investments. Now can be a good time to look at the overall financial picture that could help you prepare and gain confidence for any future financial crisis.

One of the most important lessons the pandemic has taught us is that we should always be prepared for the unexpected. It is essential to save money in an emergency fund and to be prepared for an unexpected job loss or long-term illness, both of which have become more frequent occurrences during the coronavirus pandemic.

For instance, APA Life Assurance surveyed a 1,000 of their clients in March and September 2021 and found that this is a lesson many clients took to heart. In March, 40 per cent said they had an emergency fund in place. By September, that number had grown to 60per cent.

The pandemic also showed just how big an emergency fund might need to be. Before Covid, having a rainy day fund equivalent to a year's salary may have seemed excessive or unnecessary.

However, given the length of the crisis, many people have already exhausted any of the savings they had set aside pre-pandemic and would certainly see the value now of having a year's salary in the wings.

The crisis also highlighted retirement saving strategy which generally should not be affected by fluctuations in the market. This is a lesson that clients seem to have also learned over the course of the year.

As of September 2021, the APA Life Assurance survey showed that 60per cent of clients said that the pandemic had not changed their approach to saving for retirement.

In fact, more clients added to their savings while mostly leaving their approach to retirement unchanged. Having investments to meet short-term goals means that investments to fund longer-term goals, such as retirement, can remain untouched and continue to grow.

One of the surprising trends to come out of the pandemic is that more young people have invested their money in both long and short-term investments.

The survey showed that millennials (aged between 25 and 40 years) are leading the way in taking out both retirement and life insurance policies and that the pandemic has made them feel more committed to saving than spending.

Covid-19 restrictions meant that many of us did not have the opportunities to spend our money in the ways we had previously. Eating out, takeaway coffees, shopping sprees, a trip to the hairdresser or beauty salon and overseas holidays where put on hold.

However, lockdowns made many realise for the first time just how much money they had been spending on socialising, entertainment, luxuries and treats.

The amount of savings which people were able to build up also showed how easy it is to save if you can sacrifice non-essential spending. So this experience had made many re-evaluate what they spend their money on going forward and to put it to better use.

The market drop in the wake of the Covid pandemic has also shown us the wisdom in diversifying our investments. That means not putting all our eggs into one basket in case that basket gets upset.

By putting a percentage of your funds into different types of investments, you minimise the chance that one economic event will harm all your investments equally.

There is no doubt that this has been a sobering experience for Kenyans and the whole world. Investing, saving, and planning activities, as well as taxation, life insurance and an estate plan, must be closely connected to one another and be directed towards your goals, such as retirement at a certain age with a certain amount of funds.

We may all have dreams but if you really want to make them happen, it is time to start working out what they will cost.

Without a well-rounded plan, individual tactics may actually work against you. With all the lessons learned during this time, you may want to give your finances a new start, whether by yourself or with a financial professional to help ensure you are in good shape to turn your financial plans into realities.