Important Lessons the Year 2020 Has Taught Us

Dec 22, 2020

Listen to Important Lessons the Year 2020 Has Taught Us

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"The only constant in life is change" - Heraclitus (an ancient Greek philosopher)

The end of this year is just around the corner...and what an eventful year it has been!

The year 2020 has reinforced the reality that anything can happen at a moment's notice; this taught us some important things about life, resilience, community, and humanity.

While we welcome the new year 2021 in a few days, let's take a retrospective journey and look at the lessons we can learn, adapt, and evolve from for a better future.

As you probably know that the geopolitical tensions around the globe -- civil unrest, violent protests, trade disputes, including the conflict between the U.S. and Iran, the trade war between India and China, and others -- had an impact on the global economy in 2019. All of this persisted even in the year 2020 as well.

Then, unexpectedly within a few months into the year, the coronavirus broke out and a global pandemic was declared. Our daily routines were halted with the government imposing nationwide lockdowns and restrictions.

The consequence of the COVID-19 pandemic scenario led to lows in the Indian equity markets. The S&P Sensex fell and closed at 25,981 points on March 23, 2020, and Nifty at 7610 points, on fears of a virus-led recession. Thankfully, the Indian equity managed to recover sharply, in fact, scaled a new all-time high (47,055.69 points on the S&P BSE Sensex on December 21, 2020).

That said, we faced many repercussions in the midst of the novel coronavirus pandemic and lockdown, as daily wage workers lost their source of income and many companies were affected on a large scale in various sectors, except a few such as pharmaceuticals, healthcare, telecoms, etc.

Among the health risks and financial risks, individual careers were also at stake. People across industries were subjected to salary cuts ranging from 5% to 60%. Some unfortunate individuals even lost their jobs and a voluntary retirement with a month's severance pay was offered to some senior individuals.

This decline in revenue/income sources has been a severe blow for many citizens and a challenge to manage debts, personal expenses, medical emergencies, etc.

The mid of the year, the effects of climate change (caused by humans) like the spread of wildfires in Brazil, Australia, the United States-California, etc were visible. We witnessed the devastation of hurricanes in different countries and 'Amphan' in India; and the flash floods such as 'Assam floods' added to the crisis.

By calling for emergency relief funds and creating a disruption in the smooth functioning, these environmental losses affected the country's economy, most of which took place in this year.

Besides that, political changes were another element that affected the global economy. In the U.S Presidential elections, Donald Trump lost to Joseph Biden (popularly known as Joe Biden), a member of the Democratic Party. And soon after proving to be a winner he said, "It is time to heal." It was perceived that the world economy would do better under Biden than unpredictable Trump.

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You see, such uncertainties that occurred during the year in all aspects like Politics, Economics, Environment, and Finance make us realize that the world is not the same anymore and we need to adapt the evolving "new normal" situation.

If anything, this extraordinary year 2020 has shown us the flip side of life and how to value our lives.

Here are some essential lessons about what it takes to ensure your ability to survive in such an uncertain situation and remain financially stable.

Lesson #1: Make informed financial decisions - Be vigilant with your hard-earned money and manage it wisely. Avoid any dubious offers or unworthy schemes and making financial decisions that will affect your financial health.

Lesson #2: Do not try to time the Market - Instead of timing the market, pay attention to how volatility could be systematically mitigated. SIP, a worthy mode of investing in mutual funds could prove meaningful to manage the volatility due to the inherent rupee-cost averaging feature of SIPs while you endeavour to compound your hard-earned money via equities. Timing the market for a few percentage points may not be worth the risk and may prove hazardous for your health and wealth.

Lesson #3: Maintain adequate contingency reserve - While saving and investing money wisely plus having adequate insurance is paramount; putting aside some cash-and-cash equivalents for emergencies is also a must. To effectively counter any adversity, you should hold at least 12 to 24 months of regular monthly expenses, including EMI on loans, as an emergency fund or rainy day fund. This fund would help you sustain during exigencies like pandemic or loss of job, health, etc. and eliminate the struggle of EMIs payments and regular expenses.

Lesson #4: Hold an optimal insurance cover - Make sure you have adequate life and health insurance coverage to indemnify the risk to life and health. Insurance is one of the important facets of financial planning and cannot be ignored. Healthcare costs are rising consistently; as you can see with the COVID-19 scenario to have optimal health insurance is crucial. Your life insurance coverage should be able to handle outstanding liabilities (if any), plus add to the financial security of your family so that their life goals are not jeopardised in your absence.

Lesson #5: Engage into goal setting - The year 2020 with its ups and downs has hit our health, wealth, and lifestyle hard and made us realize that it is important to secure the future of your families. You would agree that most of your financial goals are family-oriented - children's education, their wedding, that lavish car, the dream house etc. Make sure you set S.M.A.R.T (Specific, Measureable, Adjustable, Realistic, and Time-bound) financial goals, prepare a goal worksheet, and plan to achieve the envisioned goals successfully. "A goal without a plan is only a dream."- Brian Tracy.

Lesson #6: Focus on your Asset Allocation - Construct an asset allocation model best suited to achieve your financial goals. Asset allocation is not hocus-pocus but the cornerstone of investing and may help mitigate the risk during wealth creation. If you stick to only one asset class, you may miss the seemingly obvious gains that diversification offers. Diversify across asset classes and investment avenues therein for your investment portfolio to clock optimal returns.

Lesson #7: Keep your debt under check, avoid debt burden - Maintaining your debts at a manageable level is one of the foundations of good financial health. If you are struggling to make debt payments or your debt payments are higher than your net monthly income, it's a sure sign that you are challenged with a debt burden. Avoid frequent spending on credit or debt that may potentially pull you into a debt overhang situation. Pay off your credit card dues every month in full. Likewise, repay your existing loans on time and if possible ahead of schedule. In case you have made any windfall gains, clear off your debt first in the interest of your financial wellbeing.

Lesson #8: Constantly work on improving your money management skills - You might have possibly ignored or not polished your money management skills enough. Now is a good time to change and improve your money management skills. For example, doing a budgeting exercise, calculating your expense-to-income ratio, etc. Some money management skills can help reduce debt obligations as well.

To conclude...

As the year 2020 has taught us a hard financial lesson, it is time to gain better control over our personal finances and be more cognizant for a bright and secure financial future for the family.

You would agree that having a doctor in the family who understands medical nuances is quite advantageous. Similarly, having a "financial guardian" in the family who understands the nuts and bolts of personal financial planning and helps to achieve the financial objectives is valuable too.

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Now, in this "new normal" world it's time to evolve as your family's guardian for their healthier financial future!

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Warm Regards,
Mitali Dhoke
Content Writer

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