How The Pandemic Could Affect Your Personal Finances in The Future

The Coronavirus outbreak affected almost every aspect of modern life. Whilst it has been necessary for many people to re-evaluate the way they live, many businesses have also had to re-evaluate how they operate. Meanwhile, Covid continues to take its toll on the economy, with effects expected to last for several years. The pandemic has plunged society into a recession and led to mass unemployment; although it is a little unclear what this will mean on an individual level, there is speculation.

Below are the economic changes already witnessed and how they may continue in the future.

The Facts

Unemployment levels are higher than they were pre-pandemic; there are some signs of recovery, but it will likely be a slow process as some businesses may not survive, and many others won’t be financially solvent enough to hire new staff. Those In employment are working more hours as the restrictions relax, and more people spend money; however, the economic inactivity rate is still higher than it was pre-pandemic. Every worker who wasn’t in consistent employment throughout the pandemic saw their earnings fall, but those who retained their employment saw little change.  Conversely, most households saw a marked reduction in spending, meaning a few lucky people whose earnings weren’t affected may have seen more money enter their savings. 

Risk vs Reward – Financial Behaviours

This is particularly pertinent to investors as the panic set in and led to worrying volatility within the market. With two major financial events in recent years, first the double-dip recession in 2008 and then Covid, which led to the economy shrinking at the fastest rate in almost three hundred years. More and more people are becoming conservative with their money; no one wants to be associated with many risks. Cash holds more value now for people than assets do.

This realisation has led to more people making saving a priority. Whilst most people have some sort of emergency fund, the financial crisis brought on by covid has made many people rethink the amount that they have saved, with most aiming for even bigger nest eggs to see them through. Unnecessary spending has taken a downturn as the anxiety around spending money increases. Many people have reported an improved financial discipline which may be beneficial on an individual level but may not help boost the economy as spending slows. However, as things begin to open up, more spending may return to pre-pandemic levels, which could help the economy recover but may leave more people without the extra cash that they have enjoyed.

Working

Like most other aspects of daily life, the way people work has changed too. First and foremost, the rise of the home workers. It has become abundantly clear that people can be just as productive working from home as they can in an office setting. In addition, it is cheaper both for the workers and the employers when the staff works from home. There doesn’t seem to be many plans for workers to return to the office full time as of yet, and there probably won’t be for quite some time.

However, as more of the workforce enjoys the benefits of remote working, they are reconsidering their locations. Previously it has been necessary for people to live a reasonable commute away from their places of employment, but this is no longer the case. For those working in major cities, the rent alone can be astronomical without the additional bills on top. So, whilst a mass exodus from the cities isn’t totally expected, more people are choosing to move a little further out to save money.

Furlough has also had an enormous impact on workers. When it comes to an end later this year, it will have been in place for almost eighteen months. Now not everyone on furlough will have been on it for the entire time. Some businesses which have relied on the scheme to survive may look at cost-saving measures when it ends and reduce their staffing. Initially, the scheme was praised as a way to keep people employed and avoid redundancies and employment-related litigations. However, some would argue that it is simply putting off the inevitable and that people will still lose their jobs but simply after the scheme finishes.

Some businesses haven’t survived the pandemic, but the risk to businesses isn’t over yet. As the risk to livelihoods is so big, more and more people are looking for ways to protect themselves and their finances from the unknown. The options are somewhat limited, but they are there. This leads to the question, does income protection insurance matter? Income protection is the one insurance policy that can help maintain your standard of living and pay for all your other expenses should your earnings cease. It is designed to replace a portion of your monthly income if you can’t work, whether because of an accident, long-term sickness or unemployment. Drewberry Insurance offers policies to suit all, and they boast an average of 4.9/5 stars from their clients.

Habits to Adopt

There are a few things that you can do to try and protect your finances from the long-lasting effects of the pandemic. As mentioned above, things like an emergency fund or taking out income protection insurance can be invaluable. There are more basic things that can be useful too. Firstly, try to make decisions calmly; panic is never helpful. During the initial wave and in times of hardship in general, many people’s first impulse was panic. This rarely translates to an effective financial strategy. Always evaluate before making any significant money moves.

Budgeting is always a worthwhile endeavour but maybe even more so now. As the effects of the pandemic are unpredictable and no one is really sure how long those effects will be felt, implementing a budget can help your funds stretch further. Reducing costs and streamlining, in general, can lead to extra cash, which you can then contribute to your emergency fund, helping it grow more quickly.

Finally, think long and hard before taking out any financial assistance. Debts can be highly detrimental to your financial health for many years. Dip into your emergency fund first – that is what you have it for. Some people think that using their emergency fund is the ultimate last resort, and in a way, it should be. You shouldn’t be dipping into it without thinking, but if you are short, feel free to. If you think that you will need more financial help than you are prepared for, taking out a loan isn’t the end of the world, but you should do your research first. Some loans have incredibly high interest rates that can spiral out of control and take far too long to pay back.

In Conclusion

Although many people remain optimistic about the potential of a robust economic recovery, no one can be certain how long it will take. Individually, the impact of the pandemic on people’s finances varies. There are those carrying the burden of a mismanaged response to the virus, but others continued to work throughout and saw an improvement in their financial state instead. However, almost everyone will agree that this pandemic had far-reaching effects beyond their anticipation; planning is critical to prepare your finances to survive an event like this.