If I told you at the beginning of the year that the world would come to a screeching halt, would you have believed me? Probably not. What if I told you this at the beginning of February or even mid Feb? I bet the answer would still be no. In fact, you would probably have thought that I am crazy.
The speed at which the coronavirus has spread has been insane. This has caused governments across the globe to lock down entire cities and countries. Never in peacetime have the streets been this empty. And never have certain sectors of the economy shut down this quickly.
These are bleak times. It seems as though all the sunshine has been sucked from the world. I am worried how the impending recession will hit many people and take away their livelihoods. The Bank of England has already warned that that the UK economy is heading towards its sharpest recession on record. This is truly scary.
Sure the UK government has enacted schemes such to subsidise business , employees, and the self employed. It is very commendable that they have done so. But the strain on public resources in huge as a result of this. So I do not see the various schemes being extended for much longer than the stated period. And as a result people will be on their own after this. The majority are ill prepared for a recession and job losses. According to studies, 15% of Brits have no savings at all and one in three Brits has less than £1,500 in savings.
So when I received a message over the weekend from a reader via the contact form (LINK), it really made my day. No scratch that, it made my week. It just shows how important passive income can be.
Keith (real name changed for privacy reasons), is a self employed plumber living in Newcastle. Due to the lockdown implemented over the past eight weeks, his income has dropped to £0. And even though the government has announced a scheme to help the self employed, non of the grant money will be received by Keith until June. With bills to pay and a family to feed, this has put people like Keith in a very tight situation.
But luckily for him, he has a back up. Ever since he discovering the FIRE movement 7 years ago (Financial Independence Retire Early), Keith has gone about shoring up his finances. He got rid of all his debt bar his mortgage. He has a healthy rainy day fund that covers 6 months worth of expenses. And to top it all off, he has a portfolio of stocks that pay him an annual dividend income of £9,000 a year or £750 a month.
Even though he only has to wait till lune for the grant to come through, Keith can essentially self-isolate for 6 months and not have to worry about money because he has the required amount in his rainy day fund This is why having a solid financial base is so important. It gives you options in times such as these.
And let’s not forget the income Keith is still receiving even though his sat at home over the past week. His still expected to receive a dividend which equates to £187 a week. And the best part is it is purely passive. He hasn’t had to lift a finger in order to obtain it. He has created his own Universal Basic Income.
This is why I preach passive income and financial independence. Sure the corona was a black swan. But that it is why it is always important to be prepared for times like these. Recessions will always happen. It is a natural part of the economic cycle.
I have written before than everyone needs financial freedom as a catastrophe can hit at any time. Having financial stability and a second source of income which doesn’t require your own labour is a huge bonus in times like this. It helps alleviate the stress and anxiety of where the next pay check is coming from.
If you have been reading this site but not started your financial independence journey, now is as good a time as any to start. With the majority of us still stuck at home, it has never been easier to go over ones finances. If you don’t know how much you spend per year and where that money goes use this time to find out. Sit down, relax, and go through your numbers. It might open your eyes. You will probably realise just how much wastage there is in your budget.
On the other hand, if you are already well down the path consider sharing this article with someone who could use a nudge. For god’s sake why not? Many of us are sitting at home with time on our hands to look into our own money and investing. So use this time wisely. For many will never get a time to reset their finances like this again.