Things that I Learnt Last Year for a Financially Secure Future

Last year all hell broke loose. When 2022 was just about recovering from the pandemic, the Ukraine-Russia crisis broke out. As if this wasn’t enough to keep the world on its toes, inflation hit and the anxiety over an impending recession was felt. Then came the layoffs on a massive scale and a tumultuous stock market was at the backdrop of all this. What an economic rollercoaster. Even if parents wanted to start saving for the education of a child, they were stopped as all investments were on hold. Yes, 2022 was some teacher and hopefully, we’ve all learned a few, but hard hitting lessons from the past.

A World in Crisis

In 2022, the world was struck by crisis after crisis, all global events, but those that affected almost all countries of the world. The key lesson was learned from the inflation of massive proportions that the world went through in 2022. You may have just thought that saving for the education of a child was enough, but 2022 told us a different story - that saving for practically everything on the planet, and eventuality, was the key to future financial well- being. It was a kind of chicken and egg story.

In 2021, Covid had a huge negative impact on the world economy as businesses shut down. Job losses were evident then. More than businesses suffering, economies suffered. This was probably the start of the negative impact of inflation. Then, in 2022, the full-blown conflict between Russia and Ukraine startled the world. Although energy stocks were up, many others fell. There were also tremendous layoffs last year, globally, and these affected companies that had branches and offices connected all over the planet.

To top off all this, new variants of Covid tended to sprout, and the sentiment of people was far from optimistic. 2023 promises to be better, and so far, the silver lining in the long and dark cloud that was 2022, is what the world has learned to improve itself. The main thing to consider when all is said and done, is financial security to hedge such times, whether you are saving and investing for college fees or for healthcare.

What the Loss of Employment Taught Us - Having an Emergency Fund

Although record high inflation was at the core of the global economy sliding to depths unheard of, the effects were compounded. 2022 saw job losses in the thousands. From companies like Meta, Twitter, HP, Goldman Sachs to Zomato, Swiggy and Byju’s, layoffs were all too common. These were not just in one country but across the planet. Affected staff were shocked, even those established with seniority. Employees had no choice but to look for employment elsewhere, but who was hiring? Income was short and existing expenses like loans, for instance had to be dealt with.

People learned that saving for the education of a child is not the only saving required. They realised that an adequate fund for emergencies is of paramount importance. This can only be achieved by a diverse investment portfolio and a good amount of insurance. With plans that serve as life insurance cover plus investment schemes (ULIPS for instance), you can be sure of finances when you require them. Building a corpus for emergency expenses, be it illness, sudden employment loss or any other eventuality helps to mitigate costs and the stress that comes with such circumstances. Having a pension fund, for example, could be the answer to supplement what you have already saved. An emergency fund, in terms of investment or liquid cash, should always be equal to about six months of your income.

What the Resurgence of Covid Taught Us

If you are a parent, you tend to do all you can to save up for your children, in terms of their future higher education and marriage. Do you think of yourself too? First of all, simply saving is not enough. Money which is saved is good, but it won’t grow unless you invest it. Besides the investment part, you have to have monetary buffers for things like health emergencies and critical illness. These come as surprises to most of us and the costs, if not the illness itself, can kill us!

The world became complacent after the pandemic weaned off, but news of new variants was scary last year (2022). People did get ill and found that all they had saved for a rainy day, was literally depleted instantly. Hence, health insurance is a must, for both you and your family and other dependents. You would think that two years of a pandemic would wake the world up to buying insurance, but most people still don’t have adequate health insurance. Health is wealth but you need wealth to stay healthy. A comprehensive health plan with riders attached gives you good coverage, at least to tide over most growing costs of healthcare.

What the Volatility of the Stock Market Taught Us

“Don’t Put Your Eggs In A Single Basket”. You may have heard of this phrase, but do you practice it? This applies to any fiscal actions, like investments and savings. For instance, just saving for the education of a child is not enough of a financial buffer for the whole family. Furthermore, putting all your wealth into one kind of investment doesn’t ensure your fiscal security in case that particular investment faces some issues. Spreading out your savings and investments helps you to broaden your portfolio and hedge against losses from any one investment instrument or product.

In 2022, a substantial loss was witnessed in the equity markets, and if you had placed all your capital, say for retirement, there, you would have lost out financially. In the latter part of February 2022 when the Ukraine-Russia crisis began, the world’s markets plunged. Till now, global markets are low, but India is still an outlier. Nevertheless, since considering one investment channel can be a gamble, certain other investments like a guaranteed life plan, a pension plan or any other fixed income products give you the buffers you need. Diversification means that your risk, overall, is mitigated.

The Only Thing Certain is Uncertainty

Not to sound too pessimistic, but the most important lesson to be learned from the past year of 2022 is to “be prepared” and that means financial preparedness. Most uncertain circumstances and events have a negative financial fallout and only certain wealth allocations to investment can help you worry less in terms of monetary concerns. Health insurance, life insurance and other plans and schemes tied to these can offer you wealthy gains and peace of mind.

Sources:

1. https://www.financialexpress.com/money/financial-planning-six-money-lessons-from-year-2022/2923831/lite/
2. https://mintgenie.livemint.com/amp/news/personal-finance/2022-in-review-6-money-lessons-from-this-year-to-improve-your-finances-in-the-new-year-151672046039509