“Losing your head in a crisis is a good way to become the crisis.” – C.J. Redwine
Today, the whole world stands fighting in the face of the Coronavirus crisis. While Covid-19 is old news now, you can’t deny the social and economic havoc it has wrecked on millions globally. As we move forward, all of us realize many things (too much time to introspect during lockdowns?). Primary being, a crisis does not warn you in advance before taking you down with it.
In our experience, the worst thing one can do in the middle of this health crisis is to lose sense of their resources as well. Given the multiple lockdowns globally, we know how the whole world came to a literal pause to fight the virus. Stock markets plunged widely, millions got unemployed and thousands of offices remained shut for over a few months. All in all, the attack was as much on the economic well being of people as on their physical.
Covid-19 recession is a major ongoing global economic crisis which has caused both a recession in some nations, and in others a depression. After the Great Depression of the 1930s, this is the worst global economic crisis since the 1900s. Billions of dollars have been lost and billions will still go down while the economies slowly recover.
All this is macro level change but what about the changes on the micro level? What can you do or not do on an individual level to deal with this time of crisis? Here’s the list of biggest money mistakes people make during a crisis. Needless to say, you must try to avoid making these mistakes at all costs:
Table of Content
1. Stopping or Pausing Retirement Funds
When in the state of crisis, the first thing most people do is stop putting money into their long term saving plans like retirement funds. Like it or not, pausing your investments in the retirement fund when the markets are plunging is not a great idea.
What do you think is the best time to buy shares? When the markets are soaring or when the markets have hit rock bottom? If you look closely, you’ll realise that there is no better time to buy shares than when the markets are low. So, don’t pause your retirement fund investments, rather buy more shares at low prices to accumulate them for fulfilling your future plans.
2. Being a Miser about using the Emergency Fund
What’s an emergency fund for if not an emergency? This is one of the biggest money mistakes people make during a crisis. If you are in a state of crisis, feel free to use the money in your emergency fund. A lot of us become the victims of the miser’s mentality and refuse to use the emergency fund even when we know it is the right thing to do. No, we are not saying that you should splurge. Of course, we advise you to be judicious about the usage.
But remember that there is no point in saving money for times of need when in real life, you choose to live uncomfortably voluntarily rather than tapping that money out. However, if you are an investor who doesn’t need the emergency fund money to stay afloat during the tough time, you can consider investing a portion of your emergency money in shares. As you know, you can easily get more of them at low prices during the market drops and further strengthen your portfolio.
3. Forgetting that History Repeats Itself
The thing with a recession or an economic crisis is that it is not a one time thing. Time and again, you will see that history repeats itself. While no two recessions are the same, always remember that market downturns are a normal part of economic growth. The Great Recession of the 1930s was followed by the longest bull market run in history that bore witness to new all-time highs for the Dow Jones Industrial Average.
A dip in the market will cause even experienced investors to feel a twinge of panic, but it’s important to remember that we should make financial moves from a place of knowledge, not emotion.
4. The “If I don’t see it, it’s not there” Syndrome
Remember that story about the pigeon? Yes, the pigeon that closed its eyes every time the thunderstorm came, because it was afraid of the storm. Wondering why it closed its eyes? That’s because the pigeon liked to believe that “if I don’t see it, it’s not there”.
While we understand that when the market prices of your shares are falling, it is a painful task to look at them and monitor them but it is vital that you do that. See, if you don’t acknowledge the problem, how will you solve it? Constantly monitoring will help you in understanding the market better so that you can redesign your market strategy accordingly.
5. No Change in Strategy
Complacency in dealing with money matters will take you down. A lot of us get too comfortable with whatever market plan we are following, and that us if we are following one at all. With the evolution in the market, you need to learn to adapt your strategy.
With changing life stages your risk tolerance would change, and the fluctuations of the market sometimes you need to make changes in your life plans. Yes, we understand that you wanted to get that Harley in 2 years but since the market condition looks in a pretty bad shape maybe, you can put it on hold for a while? Prioritize and make changes as per your personal situation.
6. Ditching Your Budget
One thing that always takes a toll on your financial health is spending beyond your means. There will always be THE THING and THE NEXT BEST THING and sometimes the impulse to buy both will be heavy but that’s the whole point of having a budget plan. You’ll have to stick to your budget if you want to survive in the time of crisis without accumulating debt (less or more).
It’s easy to consume and spend limitlessly, especially when things are looking good. When there is enough money flowing in, who cares about keeping a budget (Pffft!)? But what when things start going south and a financial crisis hits? For those days, it is important to learn to spend within your means.
While we understand that the during times of crisis financial health is very important, we also urge you to take care of your physical health. With this article, we hope we would be able to help you in avoiding many of these biggest money mistakes people make during a crisis.