Hard to believe, but it has been about a year now since the world changed! With the hard reality of COVID-19, we went into quarantine, where toilet paper became scarce, hand sanitizer became a hot item, and we started masking up. I have certainly learned a few things over the past year, especially when it comes to money matters. Here are six money lessons I learned from the last year of living through the COVID-19 pandemic.
1. An emergency fund is essential.
If you find yourself wondering, “What is an emergency fund?” a quick search will recommend that you have enough money saved to cover 3-6 months of living expenses. Of course, our Des Moines financial advisors know this number looks different for each individual or family. Due to the uncertainty caused by the pandemic, some folks have decided to save even more, banking up to one year’s worth of expenses in their emergency fund.
So many Americans experienced job losses and/or pay cuts over the past year, and jobs that used to be considered secure are now less certain. It is a very good thing to have the cushion of an emergency fund to fall back on just in case. Thankfully, our family did not face a job loss or pay cut this year, but just knowing we had that savings account with our emergency fund readily available provided such reassurance during what has been quite a worrisome time.
2. Work on paying off debt.
If you faced a layoff over the past year, you know that it is hard enough trying to pay for the basic essentials: food, housing, transportation, and utilities. When you factor in debt payments on top of that, you are in a troubling situation! Paying off debt and getting debt taken care of before you find yourself facing a layoff or pay cut will put you in a much better financial position to weather any future financial storms.
3. Redefine your wants versus needs.
The pandemic forced many of us to make big lifestyle changes – particularly in our spending. In the early days of the pandemic, a Bankrate survey found 52% of Americans had cut their spending. For many Americans, that looked like fewer trips to the hair salon or mall to purchase clothing. It meant cancelling vacations and not spending as much money on travel, dining out, or entertaining for most of 2020.
At the same time, we saw many people increasing their spending. Grocery bills went up and people began paying a little extra for delivery services and carryout meals. It may mean you have added a streaming service for your home entertainment instead of trips to the movie theater. Like many Americans, you may have even found yourself shopping online out of boredom. The pandemic has redefined what many of us view as “essential” spending, but defining what you consider a “want” versus a “need” ahead of time can be tremendously helpful as you make those purchasing decisions.
4. Insurance coverage is important.
There is nothing like a global health crisis to reinforce the need for adequate insurance coverage. If you have been relatively healthy in the past, you may have viewed thing like health insurance or life insurance as an unnecessary expense. For many people, the COVID-19 pandemic has changed their perspective on their health and life insurance needs in case of illness, accident, or death.
5. Save for retirement.
Savings for retirement can take many forms. In many cases, our Des Moines financial advisors recommend that folks contribute to their workplace retirement plan, if available, being sure to take advantage of any company or employer matching contributions. There are also ways to save for retirement or invest money outside of workplace retirement plans. Compass Financial Advisors can work with you to explore your options as you save for retirement.
Earlier in 2020, we wrote about what to do with your stimulus check. Since that time, I have had friends use part of their stimulus checks to begin investing. They are in their 40s and until now, have resisted saving for retirement. Instead, they have been spending money on their homes, new cars, and vacations. Much like having an adequate emergency fund for your specific situation, saving for retirement can give you peace of mind when it seems like everything else is spinning out of control.
6. Avoid spending money you do not have.
You know the old adage “pay as you go?” That is actually quite good advice! Do not get ahead of yourself, and do not make financial decisions based on future income. You may be counting on a bonus check to pay for your kitchen remodel or anticipating a raise to make the down payment on a vacation. If the COVID-19 pandemic has taught us anything, it is that things can change very quickly. Moral of the story: Do not spend money you do not have.
As we continue to deal with the pandemic and a still uncertain future, we can take steps to secure our finances, calm anxiety, and restore peace of mind. These six money lessons I have learned during the pandemic are a great start. Our Des Moines financial advisors help people from all walks of life work through things like establishing an emergency fund, paying off debt, creating a budget, managing risk through insurance, and saving for retirement. Contact us today if you have questions or would like to schedule a free initial consultation with one of our Des Moines financial advisors.