What we’ll cover:
Many of us typically wait until the end of the year to look back on the things we could have done better and think about the lessons learned from the challenges we’ve overcome.
Even though we’ve just passed the halfway mark of 2020 (feels much longer than that though, doesn’t it?), the coronavirus pandemic has already given us plenty of time to reflect on what’s important in life, like our health and the well-being of our family and friends.
The economic disruptions and uncertainty we’ve faced in the past few months may have also pushed many of us to take a hard look at the way we manage money and maybe even redefine our idea of financial security. Though it may not be obvious in the moment, these tough times can provide us with opportunities to learn something valuable about our financial habits, showing us what we might need to work on to establish a more secure financial footing for the future.
That being said, let’s dive right in and take a look at some of the key financial lessons we’ve learned so far this year!
Building an emergency fund may seem like a tired talking point, and sometimes we risk sounding like a broken record when we bring it up. (Hey, we’re self-aware!)
But if you hear it all the time, it’s because it is such an essential component of financial preparedness. Many people may not really understand just how important it is until something unexpected happens – like a pandemic.
The number of people losing their jobs and falling ill due to Covid-19 – not to mention, the general sense of uncertainty about the economy – has provided a timely, real-life reminder of why everyone needs to have an emergency cash reserve. The extra cash could help provide a temporary cushion when we are in a tough financial spot.
Generally, it’s a good idea to save enough to cover three to six months of your living expenses, keeping that money in an account that’s easily accessible, like a high-yield savings account or no-penalty CD.
But if you’ve experienced serious or prolonged disruptions to your income in the last few months due to Covid-19 (whether because of a job loss, business loss or unexpected medical bills), you may have realized you need to rethink your emergency savings goals. In other words, instead of thinking in terms of three to six months of savings, you could aim for, say, 12 months or whatever would make the most sense for your particular financial situation.
Pandemic or no pandemic – debt is a drag. It can slow you down towards achieving the financial goals you’ve set for yourself.
When we’re talking about debt here, we’re not necessarily worried about mortgages, but rather, the non-mortgage debt such as credit cards, medical debt and student loans. You get the idea. Imagine how much more you could put towards your savings if you didn’t have to deal with monthly debt payments like student loans or car loans.
Because debt can limit your flexibility and options in how you want to spend or save your money, the faster you’re able to pay down and pay off your debt, the sooner you’re able to free up your budget for other priorities, such as saving for your kid’s 529 plan or your own retirement future.
Dealing with debt can be tough under normal circumstances. During a crisis, it could add even more financial pressure on you and your family. Since the start of the coronavirus lockdowns, many Americans have lost their jobs; some have had to put more charges on top of their existing credit card debt in order to help pay for essentials. In this way, debt could invite more debt.
If the pandemic nudged you to tackle your debt more aggressively, that’s great! There are a number of things you could do to help get those IOUs under control and start paying them off. We have a few suggestions in this article to help you get started.
Trying to stay on top of your debt can feel overwhelming, but take heart – this isn’t something you’re expected to accomplish in one day. It takes thoughtful planning, discipline and patience. You got this! Need more motivation? You can learn more about the benefits of living debt-free here.
Your household budget these days probably looks quite different from budgets of yore (before the pandemic).
Life in lockdown, social distancing rules and the recession may have led you to cut back on discretionary spending like travel, entertainment, dining out and gym memberships, helping some of us to realize that we may not need to spend as much as we thought to live comfortably. In other words, having been more mindful about our spending during tough times has likely helped us to better distinguish between our needs and wants.
If you’re among those who have embraced a “less is more” mentality, the lifestyle changes you’ve made during the pandemic may influence your money habits in the long run – encouraging you to spend less and save more.
As the economy begins to reopen, it will be interesting to see what changes in your spending will stick; the money you no longer shell out for certain expenses could be funneled towards your savings goals.
These last few months may have been a real crash course in all things money: Maybe you realized you weren’t as financially prepared to deal with certain surprises as you thought you were – from the unpleasant, like a portfolio shake-up, to something more serious, like a job loss.
To be fair though, the sudden and broad impact of Covid-19 has taken nearly all of us by surprise, so it’s OK if you had some fumbles.
In some ways, the pandemic has been a wake-up call for many on the importance of financial planning – the process of taking a comprehensive look at the way you manage your money, set goals and achieve the financial future you’ve envisioned for yourself. Knowing that you have a plan in place to guide you through times of trouble and uncertainty could help you avoid making panicked decisions, give you a greater sense of control and bring you a peace of mind.
Financial planning could also serve as a reminder that while what’s happening in the economy is largely out of our control, we still have control over how we respond in a crisis. How we manage our money and the adjustments that we make during these times could help us stay on track for our goals and secure our financial well-being.
The pandemic has created a financially stormy year for many, and it has not been easy to weather some of the changes. While the challenges and setbacks might have shaken our confidence, they’ve also pushed many of us to take a hard look at our finances and really think about what we could do better.
The financial lessons we take away from this extraordinary year can help inspire us to make the changes we need to improve our financial health.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.