What COVID taught us about personal finance

The coronavirus pandemic has given plenty of time to reflect on what’s important in life, like personal health and the well-being of family and friends. 

The economic disruptions and uncertainty the world has faced may have pushed many to take a hard look at the way they manage money and maybe even redefine their idea of financial security. Though it may not be obvious in the moment, these tough times can provide opportunities to learn something valuable about your financial habits, showing you what you might need to work on to establish a more secure financial footing for the future. 

Lesson 1: You might need to put away more in your emergency cash reserve.

Building an emergency fund may seem like a tired talking point, but if you hear it all the time, it’s because it’s such an essential component of financial preparedness. Many 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 you’re 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 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.

Lesson 2: It’s a good idea to pay off your debt as soon as you can.

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 and as a result, have added to their existing debt to pay for essentials. 

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 child’s 529 plan or your own retirement future. With historically low mortgage rates, refinancing can be a good option to help tackle your debt and get you debt-free faster. 

If the pandemic nudged you to tackle your debt more aggressively, that’s great! There are a number of things you can do to help get those IOUs under control and start paying them off. If you have access to Ayco through your employer, contact an Ayco coach to 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’ve got this! 

Lesson 3: Being more mindful about our spending can help us better understand what is truly essential.

Life in lockdown, social distancing rules, economic uncertainty and more 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 toward your savings goals.

Lesson 4: Financial planning is a key to overall well-being.

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, the sudden and broad impact of COVID-19 has taken nearly everyone by surprise. 

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 peace of mind.

Financial planning could also serve as a reminder that while what’s happening in the economy is largely out of your control, you still have control over how you respond in a crisis. How you manage your money and the adjustments that you make during these times could help you stay on track for your goals and secure your financial well-being. 

If Ayco Financial Wellness is a benefit offered by your employer, speak to a coach to get started on your financial plan.

The bottom line.

The pandemic has created a financial storm for many, and it has not been easy to weather some of the changes. While the challenges and setbacks might have shaken confidence, they’ve also pushed many to take a hard look at their finances and really think about what they could do better. 

The financial lessons you take away from this extraordinary situation can help inspire you to make the changes you need to improve your financial health in the long run.