The coronavirus pandemic has challenged us in many aspects of our lives. Isolation, precautionary measures, education and work have been deranged. This is not counting on the ways in which we entertained ourselves. Going for a walk, going to a nightclub or the cinema is a counter-feeling in the face of measures of isolation and protection. Our finances have also been challenged in times of coronavirus.
Health systems have been overwhelmed by the pandemic, which means higher health expenditures. Many industries have been affected by low revenue layoffs and even entire industries in closure or transformation.
No doubt the pandemic has changed everything and by changing the economy and our social relations force us to adapt. We may still wonder… how should we adapt?
In this article we will talk about finances in times of coronavirus, how to reinvent ourselves and how to overcome it.
You can also read this article in Spanish called “Finanzas en tiempos de coronavirus, crisis y pandemias“.
Finances and crises in times of coronavirus
One of the most important aspects of the economy is trust. Without trust, people begin to retreat and close the spending. By closing the expense the circulation of money is affected and a process begins that can lead to a recession.
Crises such as the housing crisis, the great depression among others have had different ways of approaching. But like everything in the end, the economy has a greater or lesser impact.
Governments are trying to restore trust. From people it is about being prepared as best as possible to face the consequences.
Whether or not governments take actions that protect us as citizens, it is our place to be prepared. Preparation is the key to crisis and coronanavirus finances.
Countries and people with emergency funds have been able to cope more calmly with the situation.
Better health systems have been able to cope with the pandemic, and so have people with better prior health. This moment shows us that personal health is also part of our economy and by taking care of both of us.
The key is prevention and forecasting. That’s why today we’ll talk about how to reflect both of our patterns of income, spending, borrowing and savings. So we will be ready, not only to face a pandemic but any crisis situation.
Understanding the consequences of an epidemic or pandemic is important in understanding what is happening in the economy. The key is that massive contagions give rise to typical measures to manage the situation.
A typical measure results in isolating people to cut chains of contagion. This leads to reduced social and economic relations. Isolation leads many to postpone expenses and therefore companies have lower incomes.
Companies with conservative projections are better prepared for those whose income projections are aggressive. Likewise, people who operate on 100% of their income generate expenses and indebtedness that can take them to the limit.
Companies with lower revenues can adjust. This can lead to layoffs or reorganizations that can upset expansion plans. Normally the level of employment is resented which leads to less spending and more recession.
That’s why governments in their quest to avoid recession inject money into unemployed people to maintain the economy. However, this money will have a future effect, as will the additional expenses in the health system.
All of this sooner or later may pass on to the economy, unless governments have their tax accounts healed. That’s why in times of “fat cows” we need to pay attention to our finances.
Income and Egress
The balance between income and egress is key to a country’s and people’s finances. That’s why we said that stimulus measures in a country with healthy finances are excellent. But in a country with battered finances, they can create a sense of temporary relief that can get worse in the future.
This is how people who go into debt to spend on a day-to-day life end up falling into a crisis and defaulting on their credit cards. Every form of indebtedness in the present entails future sacrifices.
Some countries, for the sake of the popularity of their politicians, postpone sacrifice until their economies collapse.
The balance between income and expenses for finances in times of coronavirus are key. As long as the income is higher than the egresses, we’ll be fine.
The most important thing is that our expenses must be in proportion to our income. To the extent that our income is higher or lower, expenses must be adjusted in the same way. This is how, in the face of any imbalance, we must seek to cut expenses or increase our income. So we’ll have finances in times of coronavirus or at any time healthy.
That’s why we need to be methodical in spending our income, prioritizing and recording expenses. Finances in times of coronavirus must be more rigorous than at other times.
But we know that at any time things can change, especially if there are layoffs in the economy. And at this point there is something that is very important and what we will talk about next, the value of savings.
The value of savings for finances in times of coronavirus
Savings is our “emergency and extraordinary expenditure fund.” If we know that a pandemic or coronavirus can cause an emergency then we are clear of its importance. However, there are two elements that we should consider:
- Savings can only occur under conditions where income exceeds egress: That differential becomes savings. That’s why the balance between income and egress is key. Savings are required to be made in a species that does not lose value to make sense.
- Savings allow us to make extra expenses at lower cost. If we want a computer and we borrow, we pay for the computer and the interest. If we save in addition to paying the computer at cost we can receive interest on the money saved while we have not saved enough money. The computer therefore comes out cheaper purchased with savings (in a currency or asset that does not lose value) than purchased through debt.
- Savings can help us meet expenses when we have a timely decline in our income. This allows us to maintain our lifestyle while decreased expenses or increased our income to previous levels.
Effects of savings on finances in times of coronavirus
Savings is a great ally of finances in times of coronavirus. This can help us to attend medical treatment or cover expenses in case of dismissal. Or better yet give us a chance to buy the things we want at the best price. Even savings can turn it into investment and new income.
We can follow many tips to manage our finances facing the coronavirus pandemic, but the first is to save.
Balancing our income and expenses and savings will allow us to navigate the uncertainty and difficulties of finances in times of coronavirus.