Being financially secure with your liquidity and assets is one thing, but are you truly prepared for worse case scenarios?
There is an abundance of advice to be found when it comes to personal financial management and you may think you have all bases covered, but Covid-19 has shown us all that we may not be as ahead of the game as we think we are.
If these Covid-dominated times have taught us anything, it is to expect the unexpected. When the unexpected happens, it is equally important to be both prepared and practical when it comes to making financial decisions.
Below, we take a look at factors you may wish to bear in mind if and when the unexpected arises.
When ill health strikes, are you prepared?
Rather surprisingly, more than half of British adults do not have a will prepared and the pandemic left large numbers of people frantically trying to get one produced.
However, this urgency to draw up wills arrived at completely the wrong time, as solicitors were reduced to working online, which denied people the chance to enjoy the face-to-face meetings that many value when it comes to making a will.
Similarly, it is estimated that only one in three people in the UK have life insurance, so while you may consider yourself financially secure, would your dependants be able to cope in the event of your death or serious illness?
Retirement plans can change so flexibility is key
Research by the Institute for Fiscal Studies showed one in eight workers aged 54 and over altered their retirement age as a result of the pandemic.
The majority of these people opted to retire later than originally planned, which highlights the importance of flexibility. Even the most organised and financially astute among us can see their best laid plans go up in smoke as events, rather than personal choice, change circumstances.
Of course, it is important and indeed entirely sensible to budget for retirement, but if the pandemic or another event has altered your finances, then it is only sensible to consider extending your working life or perhaps reducing your working hours rather than retiring completely.
Remain calm despite uncertainty with stocks and shares
It is important to remember that, when it comes to stocks and shares and investment diversification, the decisions you make can have a big impact on your livelihood.
As the realisation of Covid’s impact dawned on the world’s investment markets, the value of global shares plummeted, with both the UK and US markets falling by a third in a month during spring last year.
As lockdown gripped the world and many businesses closed – including some permanently – it was unsurprising that some investors rushed to sell shares.
However, the greater the fall, the sharper the rise. As long as there is economic growth, the stock market will always recover and rise to new highs over the long term, due to increased sales leading to higher earnings.
This is not to say individuals should not be concerned or seek independent advice, but rushing into decisions is ill-advised.
It is never ideal to see gains disappear, but it is important to remember that profits and value are not the same things.
The only way to achieve gains is to have your money in the markets. When investors attempt to ‘time’ the market, they commonly make the mistake of taking money out when valuations are low and investing again when valuations are high, which is rarely a sensible investment strategy.
Do not rush into decisions
The housing market is another example of why it is best to take a step back and fully evaluate the situation before deciding on your next step.
Over the past year, many people previously looking to buy a property held back on their plans as the market stalled.
However, with interest rates remaining low and buyers hard to come by, those in need of liquidity would have found it difficult to say no to even reduced offers.
Selling a property brought different challenges, but it was not necessarily the right decision to haul your home off the market as the pandemic took hold.
Even if buyers were holding back, they were in many cases still browsing, so sellers who decided to remove their property from the market were behind the game when it came to buyers becoming active again.
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