How COVID-19 Might Change the Way We Approach Personal Finance

So far, 2020 has been a year no one could have predicted. We’ve had to navigate a new normal, adopt new routines, and face an uncertain economic future. It hasn’t been easy for anyone.

But the past few months have also been both a gut check and a time to pause and reflect on how we manage our money and our lives.

In a pre-coronavirus world, being “busy” was a badge of honor. We lived frantically, trying to beat the clock in our efforts to do more. Many of us were already stretched thin before we went into lockdown.

The question now is where to go from here?

While we’re all collectively stressed (and some days, pushed to our limits), we’ve also had time to reflect on how our lives can be different going forward and how we can better manage our money to prepare for what comes next.

Here’s what we’ve learned and where we might all forge a better financial path ahead:

 

Emergency Funds Are Key

One thing COVID-19 taught us is how unexpected life can really be. Having even a small amount in savings will help you stay on your feet no matter what comes next. COVID-19 and the current recession aren’t the only things that can derail your finances. A sudden rent hike or a blown car transmission can threaten your stability as well if you don’t have savings to cover them.

The rule of thumb for emergency savings is to have three to six months’ worth of expenses covered. But most people don’t have a few grand to drop into a savings account in one fell swoop—and that’s OK. We don’t need to have it all figured out right now, we just need to get on the right path.

It’s OK to start small. Aim to set aside one month of expenses, prioritizing non-negotiables (such as rent and utilities), and then build from there.

If you’re unemployed, the extended federal unemployment benefit of $600 per week, given out under the Coronavirus Aid, Relief, and Economic Security (CARES) Act will end July 31. Some legislators want to continue the benefit, but it’s best to assume you will not receive that money after July so be prepared for either outcome. Between now and the end of July consider making cuts to your budget. Trim wherever you can so you can save as much of your current unemployment income as possible.

 

We’re Only Spending on Essentials

The impulse to stress-shop is real, and you shouldn’t beat yourself up if you’ve gone overboard with online purchases during the past few months. We’ve all been trying to cope with this completely unprecedented situation, and there’s no guidebook for how to do it.

If you’re stressed about money and your house feels more cluttered than it did in mid-March, it’s time to institute a spending freeze. Not only will this help you save money, it will give you a chance to think about whether what you want to buy is truly essential.  If the answer is a resounding “no,” then this is a great opportunity to reassess your purchases.

Institute some rules about spending, such as having to wait at least 24 hours before you buy anything off the internet. Once the initial impulse subsides, you can think more clearly about whether a purchase is essential and whether you can really afford it.

 

We Need to Talk About Money

COVID-19 opened people’s eyes to several issues, such as the need for emergency savings and the value in having enough pantry items and medicine to last your household several weeks. If you’re living with a spouse or domestic partner, it’s important that you discuss these things to determine how much you need and how much you can each afford to contribute to those funds and stockpiles.

Take this time to examine your individual spending habits and create shared goals for your finances. Is one of you a spender and the other a saver? What do each of you consider essential monthly expenses? Can you live on one person’s income if someone’s hours are cut? It’s important that you budget for those expenses, even if you don’t typically share them.

Fair warning, these conversations may not be easy but they are necessary. In fact, they may get you talking about your long-term goals and the life you’re building together.

 

We Could All Use an Econ: 101 Lesson

The more you know about the economy, the less stressed you’re likely to feel when you see headlines about recessions and downturns.

Check out resources like the free CrashCourse series on Economics on YouTube or the free classes on Khan Academy. The latter is designed to be engaging for all audiences, so if you’re intimidated by finance, that’s a great place to start.

You may want to become more hands-on with your money as well. Look into your credit card fees and interest rates so you know how much you’re really paying to use them. Once you get going, you may find that managing your money and learning how to save, budget and invest are actually pretty fun.

Most importantly, you’ll feel more in control and empowered, which helps you make better decisions the next time you hit a financial rough patch.