Unlike the infamous 2008 financial crisis which came from neglect and poor management, COVID-19 put new, unprecedented strain on global financial systems, including health care, international business and supply chains both local and abroad. So many systems under pressure at the same time affected the lifestyle and personal finances of everyday citizens, with a follow-on effect on mental health stemming from uncertainty and increasing vulnerabilities.
An immediate follow-on we are now experiencing, not just in Australia but worldwide, is rapidly rising inflation, impacting the purchasing power of individuals and forcing them to find ways to inflation-proof their finances.
Assets through investments, such as gold, are flexible solutions to protecting your money while seeing a steady return. This is made increasingly popular by the increase in digital funds and app-enabled transfers with global third parties, giving everyday people access to a wider range of real-time investments.
As the known and trusted structures of our economy fail, people are paying close attention to investments that are resilient in the face of geopolitical conflict and volatility.
With adaptations taking place so rapidly it can seem difficult to keep up. Knowing where you can allocate your wealth will help you make assertive choices to see through difficult circumstances and maintain growth for your future security.
What are the effects of COVID-19 on money?
While many countries are starting to recover from the pandemic and have reopened their borders to resume work, play, and economic life, COVID-19 is still playing a part in our communities. Tensions and alerts remain high, particularly from a government standpoint. The pandemic seems likely to remain a fact of life for the foreseeable future.
From a consumer point of view, the effects of COVID-19 on the economy are expected to last for several years – which goes hand in hand with its impact on how people handle their finances, including spending less on non-essential goods and services.
According to COVID-19 studies conducted by McKinsey, big impacts were seen globally across all cultures and regions and these sentiments seem to be holding strong, even as markets reopen, including:
- Reduced saving, income and spending
- Fears around job security
- Switching from cash to digital payments
- More credit being drawn from banks and lenders
Of the global respondents to the McKinsey studies, an overwhelming majority state that they had lost faith in the economy as well as the strength of their own personal finances. This had, and continues to have, an impact on the way people spend, save and rethink their stance on money and wealth, with many reducing their savings and tightening up on spending. The uncertainty has also led to changes, especially around banking and investments.
Consumers are asking for more flexibility, understanding and seamless transactions from their banks as cash takes a backseat in favour of digital payments and mobile banking. This has paved the way for new digital banking and investment platforms to step up and provide the services consumers are asking for.
Banks are also increasing their flexibility and mobile services to keep up. Fintech and app platforms that empower users to invest in different assets, such as digital gold, have made it possible to push traditional banks to digitise and make funds available at the point of sale and to global markets.
How can you adapt to the effects of COVID-19 on your money?
Even though your finances and feelings around wealth, security and investments might have changed due to the lingering uncertainty of COVID-19, there are ways to weather the effects of the pandemic on your personal finances.
Because the effects of COVID-19 are expected to continue to impact national, global and personal finances for the next few years it’s important to safeguard your wealth and feel empowered about your financial situation. Here are some ways to get started:
1. Take stock of your spending
It’s time to take a closer look at how you manage your money. Review your spending history and your spending habits, there may be items you’re paying for that may no longer make sense for your lifestyle post-pandemic. A lot has changed, although your automatic payments might not have caught up yet.
By going over your expenses you can rethink your approach to what you spend money on and have a chance to re-evaluate what’s important to your long-term goals. Ask yourself if there is any wiggle room to negotiate payment plans or cut anything out.
As markets open up again and economies push for resurgence it’s expected that consumer spending will spike momentarily. As long as you’re smart about your money and what you’re consuming, you can stretch your budget further and make sure you are making purchases and investments that hold real value for your new lifestyle.
2. Rethink your savings plan
During lockdowns saving money was easier due to closed restaurants and entertainment venues. Even as holiday destinations and cocktails beckon, you can allocate a specific amount from your pay into a savings account to help you build better saving habits. This is an especially great strategy for people who tend to splash out on payday.
A good sample amount is around 20% of your paycheque, but you can increase this amount to suit your expenses or meet your future investment goals. Try different ratios of savings relative to your expenses to see what works for you.
After taking stock of your spending – as per step one – look at your income and set up an automatic transfer to shift additional money to a separate account. The money doesn’t have to be off-limits, you can still access it for emergencies, essential items or investments, but by taking it out of sight you are less likely to party when your pay hits your account.
3. Get serious about investing
Instead of letting your savings sit in a bank and appreciate at a sluggish pace, you can empower yourself financially and improve your financial management by looking into investments.
A well-thought, diversified portfolio, made up of resilient assets will help you take control of your savings and grow your wealth for the future. Most assets increase in value over the long-term, especially safe assets that have a lower risk, so look for investments that you can cash in on or draw on when you reach retirement.
A balanced portfolio is formed by observing how assets are behaving and which ones remain steady and lucrative during tough economic times. Some assets may not be reliable in a crisis despite appealing spikes in value, others, like gold, have performed well and have historically withstood the test of time.
A portfolio that’s primed for steady growth will help you adapt to the economic effects of COVID-19 and regain confidence in your financial standings. When you’re serious about investing and weigh your options around what will bring you the best returns, you secure the opportunity to grow your wealth passively and secure another avenue of income.
COVID-19 has made a significant impact on the financial sector and the economy. These effects are expected to take effect for years to come, at least in terms of consumer confidence. While putting more effort into savvy budgeting is an avenue to help regain control of your finances, the real gains come from adapting and growing your savings through strong investments.
If you want to learn more about how you can earn more from your dollar, no matter how shaky the economy or dollar, visit our website.