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The economy can take a turn for the worse in the blink of an eye, but most people are hardly prepared. These are the biggest financial lessons to learn from Coronavirus to weather this storm and the next one too.
Just a few months ago, the economy was running on all cylinders and jobless claims were at an all-time low. But then the coronavirus pandemic happened.

Fast forward to today and over 26 million have filed for unemployment since March 16th. In fact, many experts estimate that 15% to 20% of our workforce could currently be unemployed. We haven’t seen those kinds of jobless numbers since the Great Depression.

Very few, if any of us, saw this coming. And, honestly, how could anyone have predicted the situation we now find ourselves in? The COVID-19 crisis shut down the world economy on a scale never seen before.

We’ve witnessed how quickly jobs can disappear and how it’s possible for our economy to come to a halt. With this information, we can also now take a look back at some lessons to learn for the future.

Here are 6 things the pandemic can teach us about the importance of living within our means.

1. We all need access to liquid savings for emergencies

A few weeks ago, you may have thought that you worked in a job with a high level of job security. But when government shutdowns make it illegal for your employer to open its doors, unemployment is hard to avoid.

This event has, once again, highlighted why everyone needs an emergency fund to protect themselves against a prolonged loss of income. The Federal Reserve recommends that everyone have at least 3 months worth of expenses saved in a rainy day fund, while many financial experts recommend having up to 6 months of expenses put away.

In 2019, that kind of financial advice may have seemed a bit too conservative for your taste. But the coronavirus crisis has shown why each of us needs an emergency stash of cash. Investing for retirement is great and certainly important. But building up an emergency fund in a liquid deposit account like a high-yield savings account should be your first priority.

Related: What to Do When You’re Unemployed: 7 Timely Money Tips

2. Keeping a low debt-to-income ratio is important regardless of income level

Most financial experts recommend that consumers follow the 28/36 rule. This rule says that a household should avoid allocating more than 28% of their monthly income towards mortgage payments and no more than 36% of their income towards all debt (including car loans, students loan, credit card debt, etc).

According to the 28/36 rule, someone who makes $5,000 per month should keep their mortgage below $1,400 per month and all debt payments below $1,800. And if you make $10,000 per month, your maximum mortgage payment should be $2,800 and you should keep your maximum total monthly debt payments below $3,600.

Having a high income is nice. But if you also have a high debt-to-income ratio, you could still be feeling a lot of financial pressure right now. That’s why working to lower your DTI is always a smart financial move no matter where you fall on the income scale.

Related: What to Do When Your Mortgage Payment or Rent is Late During a Pandemic

3. Maxing out credit cards to maintain a lifestyle can cripple us financially

Every day we’re inundated with advertisements designed to convince us that we “need” a new car, phone, pair of shoes, and endless other items. And when you don’t have the money to buy all those things today, credit cards can seem like a quick route to the “good life.”

But using credit cards to maintain a lifestyle that we can’t afford is a bad financial move. First, they often come with sky-high interest rates. But that’s not the only reason why credit card debt can be so dangerous. They also offer fewer borrower protections.

If you have a mortgage or student loans, there’s a good chance that you can apply for a forbearance during the coronavirus pandemic. But most credit card companies have been vague (at best) about offering COVID-19-related financial assistance. In many cases, you can expect to accrue interest charges if you don’t pay off your statement balance and fees if you’re late or miss a payment.

It’s fine to use credit cards to earn rewards as long as you keep your spending within your budget. But maxing out credit cards to “keep up with Joneses,” usually only leads to financial heartache down the road.

Related: How to Lower Your Credit Card Interest Rate

4. Building multiple streams of income may be the ultimate financial firewall

Another lesson that the COVID-19 pandemic has taught us is that we all need to have a plan for how to make money if we suddenly lose a job. While side hustles are typically thought of as a way to make extra money, they can also provide financial protection if your primary stream of income drops to zero.

Building two, three, or four streams of income is one of the best ways to increase your financial security. Thankfully, there are lots of side hustles that you can do from home. Why not try launching one or two online businesses during the coronavirus lockdown that you can keep running after your day job picks back up?

In the short-term, adding a side hustle or two could help you pay some of the bills while your income is lower. And, in the long term, working a side hustle could help you build your emergency fund faster or save more for retirement.

5. We can’t always rely on money from lenders, especially during economic downturns

Before 2008, lenders were passing out mortgages like candy. But when the financial crisis hit, they were forced to raise their borrower standards and it became more difficult to get a home loan.

We’re already beginning to see the same type of response from lenders due to the economic uncertainty surrounding the coronavirus pandemic. Recently, Chase announced that they were changing their mortgage requirements. Now, applicants must have a credit score of at least 700 and a 20% down payment.

Several other lenders quickly followed Chase’s lead by also announcing stricter borrower requirements. From new mortgages to mortgage refinancing to personal loans, you can expect that banks are going to take a harder look at your credit score than before and they’re definitely going to want to verify your income.

The point? Borrowing is typically easier when times are good and more difficult when times are bad. None of us can rely on being able to take out a loan as a fallback if we need emergency cash. Access to loan funds is never guaranteed and is not a true alternative to building up an emergency fund.

Related: Should You Refinance Your Mortgage During the Pandemic?

6. Living on a budget helps all of us to be more intentional with our spending

When money is flowing freely, it’s easier to survive financially without a spending plan. But when your income is cut back, every dollar suddenly feels a little important. That’s why many of us have whipped out our budgets for the first time in a long time during the COVID-19 crisis.

If you’ve just recently started using a budget again (or for the first time ever), you may have already noticed an interesting phenomenon. Living on a budget can feel, in many ways, like getting a raise.

Why? Because, suddenly, you’re actively thinking about how much you’re spending at the grocery store or on all those monthly subscriptions (many of which you may not even use). And within a month or two of following a spending plan, many of us are able to create an extra $500 to $1,000 per month of cash flow by simply reducing our expenses.

If you’ve just discovered the wonder of living on a budget, congratulations! You’ve learned a new skill that could benefit you financially for the rest of your life.

But if you’ve been putting off building a budget because you’re afraid it will be too much work, think again. There are many tools and apps available now that make it easy to create your first budget and maintain it. Here’s a list of the best budgeting tools available today.

The Bottom Line

If there was one sentence that perfectly summed up what the coronavirus pandemic has taught us about money, it would probably be, “Expect the unexpected.” Even the smartest economic experts in the world couldn’t have predicted this financial crisis. Yet here we are.

And while we may never deal with this exact same kind of crisis again, unexpected events will always be a part of life. But by building up our emergency savings, living within our means, and diversifying our income, we can better protect ourselves against whatever curveballs life decides to throw our way.

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