A large-scale crisis, like the one we're facing now, can have a huge impact on society in general and you in particular. When the situation has improved and things have settled, here are 6 things you should do to recover from the effects.
1. Rebuild your emergency fund
You almost certainly dipped into your emergency fund to weather this crisis. Well, that’s what it’s for. But now, you’ll have to replenish the fund, just in case another incident happens. When allocating your savings, make this your top priority.
Aim to do this as soon as possible, but remember that emergency funds are usually made to cope with a smaller problem, like suddenly losing your job. Now that you’ve been through a large crisis, you can see how well your fund dealt with a different type of emergency.
Was the amount enough or did you need alternative sources of money? Was the fund easily accessible? Look at your entire experience and see what needs to be improved or changed. Remember to add a buffer in case the next crisis takes longer to deal with.
2. Check your investments
Check your investments and see how everything is performing. In times of large crises, business can drop drastically, causing a huge impact on the economy and investor confidence. There are certain investment products (like fixed-income securities) that may weather a crisis better than others.
One thing that you should keep in mind is that the market may take some time to recover, but any loss will remain a paper loss until you actually sell the investment. Think of the future when you consider this, because the market will have the potential to rebound as things start to get better.
If you can afford to hold on until there is a full economic recovery, your losses may shrink or fully disappear. In fact, you may even find that your investment has returned to being profitable. If this happens, it may take some time, so be prepared to wait.
3. See if you should make new investments
In the wake of a crisis, you might come across some good opportunities for an investment. With the market down and people unsure of their next move, stocks with good potential may be more affordable and the minimum amount for certain funds might even be lowered.
To see if the investment matches your needs, check also how long it took for the market to start recovering from the crisis, and see if you would have been ok to wait that long.
Before taking any opportunity, remember to check your budget. If your emergency and day-to-day operating funds were hit hard during the crisis, replenish these first and see if you can make a new investment after.
4. Learn from your experience
You need to do an honest assessment of your own performance, too. See how well you handled the crisis in terms of using money.
Did you prioritize the essentials and resist spending on luxuries? Were you prepared enough, or did you experience financial difficulties? The answers to these questions will help guide you in properly preparing in case something bad happens again. That includes mental preparation as well as financial.
Of course, we can never be completely future-proof. Nobody knows just what sort of crisis will happen, or how long it will last. But we can at least do things to help increase the chances that we can recover from whatever happens.
5. Stay liquid
Since you’ll be rethinking your cashflow allocation, this is a good time to make sure that you remain liquid (having money that isn’t tied up in investments or an emergency fund). No matter how small, always make sure you still set aside a percentage of your income every so often.
When you’re liquid, you can respond to opportunities quicker. For example, if you see a good investment opportunity that fits your needs, you might be able to get it without diverting money away from your financial recovery.
Having ready cash also makes it easier for you to try other, more aggressive investment products that offer greater potential gains in return for higher risk.
6. Learn from the experts
See what the investment experts are suggesting. These specialists are sure to have spent the crisis by keeping a close eye on the market, and they’ll know exactly what to do once the situation has ended.
Don’t forget that different experts will have different approaches. Read their recommendations and see which of their strategies best applies to your situation and portfolio. In case you’re unsure, never hesitate to reach out and ask. That way, you’ll have solid advice from a reliable source.
