The raging COVID-19 global pandemic made it quite clear to many people just how volatile the global economy could be when a crisis of such magnitude suddenly occurs.
During the first few months of the pandemic’s rampage, millions of people worldwide suddenly found themselves unemployed as factories, stores, and countless businesses had to temporarily or permanently close shop or lay off employees to remain operational.
In many countries, food security became a national priority as the global supply chain and manpower practically went to a standstill, with lockdowns and travel restrictions among the initial responses by governments to curb further transmissions.
It is during such troubled times that making one’s hard-earned money count down to the last dollar is necessary. In a crisis, making financial blunders is never an option.
Here are five of the most costly financial mistakes you could do (and should avoid at all costs) during crises:
Refinancing a mortgage for the wrong reason
Refinancing a mortgage, if done properly, can be a lifesaver for homeowners who are faced with financial difficulties. Some of the benefits and reasons for doing it are interest rate dips, credit score improvement, stretching out loan terms, and switching from adjustable-rate mortgage (ARM) to fixed-rate mortgage.
If you want to know for sure that you’re refinancing your home mortgage with the right intention and reason, you must consult with a licensed mortgage refinancing reading company through a broker. Such an industry professional can give you sound advice concerning your plan and guide you to the proper way of refinancing your existing mortgage. This way, you won’t end up regretting your decision and get the better end of the deal.
Not diversifying your investments
According to Harry Markowitz, a Nobel Prize laureate for Economics, “Diversification is the only free lunch” one could have when it comes to investing. He proposed the portfolio theory, which sought to validate the thesis that an “optimal” or diversified portfolio minimizes risks and optimizes returns. In short, Markowitz is essentially telling potential investors not to put their eggs in a single basket lest they want to lose everything in one fell swoop.
As such, you should explore the same idea and apply it to your real-life investments. For example, you can allocate a portion of your investment fund to stocks and another portion to bonds. This way, if something goes south with one of the two investments, you still have a backup that could hopefully turn the tide around in your favor.
Cutting down on expenses and investments that are vital to continued business operations
If you own or manage a company or any business venture, one of the biggest mistakes you could commit is to stop money-making projects to save money. Keep in mind that your business needs to have the cash flow solid and steady, and unless you’re 100 percent certain that a project will only make you bleed out financially, then you shouldn’t make the hasty move of canceling it out.
Getting the marketing budget down to zero
Cutting down one’s marketing funds to “save” dollars is yet another knee-jerk reaction that could make any business tumble down amid a crisis.
While many are convinced that marketing efforts should take the backseat during crises such as the COVID-19 pandemic, you should not be easily swayed by such a simplistic view and instead, try looking at the big picture. This is because your business should get the word out to your customers, suppliers, and partners that you’re still operational. This way, they know better than to leave you hanging, especially if they do need whatever products and services you offer (or need, in the case of your suppliers).
Slowing down on essential tasks and productivity projects to save up
While it’s really tempting to take things slow amid the chaos that a crisis brings, you should take it as a golden opportunity to step on the gas and rev your productivity efforts with the time that you’re suddenly blessed with.
This means that instead of treating a crisis as an opportunity to take a vacation from all the expenses, you should use it to beef up employee training, think of new products or services, and get up to speed on your bookkeeping and taxes.
By doing all these, you’ll make wise use of the downtime during a crisis and emerge stronger after it is over.
Just take note of these mistakes and the ways to avoid them, so you can play your cards well whenever a crisis knocks on your door.