How the Pandemic Changed Financial Planning (And What We Need to Do to Keep Up)
by Scott K. Schmidt, Chief Financial Officer, U.S. Money Reserve
The global pandemic has impacted all aspects of our lives, including our finances. Here’s what we need to do to ensure our financial security.
The global pandemic has utterly upended entire swaths of our lives — everything from our livelihoods to how we educate our kids. It’s no wonder that it’s also impacted our finances and, in turn, how we manage and deal with the in- and out-flow of money.
As we wade through the next few months of the second wave of the coronavirus, it’s essential to consider how to maintain our financial wellness in these challenging times. Here’s how the pandemic has changed how we should all approach our financial futures and what we need to do about them.
Uncertainty Is King: Save for an Emergency
It should go without saying that the new pandemic and even post-pandemic world will be rife with uncertainty. As unemployment claims climb, job recovery stalls, and markets become increasingly disconnected from the reality of the economy, we must adapt to the new financial world order.
So what does that mean for your financial planning? Emergency funds and savings are even more critical than ever. Sure, financial advisors are always touting the value of having a rainy-day fund, but statistics show that one in four people did not have a rainy-day fund as of 2019. More than 46 million people said that they had already exhausted what minimal emergency funds they had by September of this year.
All this goes to show that we need to rethink our emergency funds and really commit to finding a way to stow away at least six months’ worth of coverage. The truth is that once this pandemic is at its end (or simply becomes something we have to live with, the same way we live with the seasonal flu), many jobs won’t ever come back. Many businesses likely won’t survive, either. While that may be frightening, it doesn’t have to be. In these moments, there are always significant opportunities for growth and change. The pandemic has allowed us to slow down, refocus on what matters the most, and even significantly revamp our businesses. While change is never the most comfortable thing to go through, it is an opportunity to reshape our futures in the way that we want. One thing is for sure, though — we can keep our families and our finances safer by planning for those moments when the going gets tough.
Protect Our Health: Choosing the Right Healthcare Is Critical
The pandemic has continued to underscore the importance of having the right healthcare plan for ourselves and you families as we all try to stay healthy. Sure, we often mindlessly check the health insurance box each year when it’s time to renew our health plans, but we don’t necessarily read the fine print or understand what a catastrophic illness (like COVID-19) could cost us. In many ways, the idea of choosing the right health insurance plan is a lot like saving for our emergency fund: It helps keep us and our family safe in the long term, and we need to take a careful, long-term view of the details contained in it.
In many cases, this might make us reevaluate the way we choose plans. Perhaps rather than selecting the high deductible plan in combination with a Health Savings Account (or HSA), we might choose something that better meets our needs and covers both our potential health issues and our family’s while not costing an arm and a leg. The point of insurance, after all, is to help cover us when we need it the most.
Manage Our Budgets: The Way We Spend Our Money Is Changing
As working from home becomes much more normalized, we are spending money in new and different ways that are likely to enhance our home spaces and raise our houses’ value. People are investing in everything from upgrading their living quarters with renovations and additions to buying tons of patio and office-style furniture. We’re also doing a lot more purchasing online, whether we’re getting takeout or delivery from local restaurants or buying all of our cleaning supplies through Amazon.
All this is to say that with the advent and continuation of the pandemic, our spending habits and spending priorities have changed. Rather than saving for a vacation or travel (which eventually will come back — but there’s no telling how long that might take), we’re spending our cash on things that we interact with and use each and every day. In some cases, those expenditures might be large but only occur once. In other cases, as we seek ways to make our home lives a bit more comfortable, we may decide to put money towards recurring items, whether some kind of meal-delivery service or a house-cleaning service. Either way, it pays to take a closer look at how we are spending our money now and ask ourselves what we really need to make our home lives more comfortable.
Manage Our Homes: Where We Choose to Live
Since remote work is becoming the norm, we have a lot more freedom to choose where and how we live. We don’t necessarily need to be close to the office or our work location to be productive, and that can help us adjust our spending and budgets. If, for example, we no longer need to be in New York City and pay astronomical rent for a tiny apartment, it might make sense to head to the suburbs and find a place with more space for less money.
In addition, the pandemic has given us the opportunity to consider places that may be a bit more off the beaten path. If we can truly work remotely, why not find a place where the cost of living is lower, we can have more space, and we can do our jobs? If it makes good financial sense, it might be best to consider upgrading our location and reducing our costs.
How We Save for Retirement
Whether close to retirement or not, the way we need to save for our golden years has been fundamentally changed by the pandemic. Whether we’re reevaluating how much we put away, where we want to live, or how we want to spend our sunset days, the way we think about and save for retirement has shifted. The pandemic has increasingly drawn our focus to home and family, which means many people are considering moving closer to home or closer to their kids when it’s time to retire. That can significantly change the amount we might need for a comfortable retirement, and it might change our expectations and needs for space, too.
Additionally, many people have lost their jobs, which means that they are no longer contributing to 401(k)s. That can shortchange us in the long run, but there are plenty of other options for saving for retirement (like an IRA). If we find ourselves in a situation where we have lost our job but still want to save and plan for retirement, it makes good sense to work with an expert to figure out what might work for us — and to reassess just how much we should be putting away regularly.
Finally, the markets have been increasingly disjointed from the overall economy, which means that we should closely evaluate any holdings we might have (especially in retirement accounts) to decide whether we’re still in the right spot for our financial situation. It pays to review personal finances on an ongoing basis anyway — and doing so now makes good sense.
The Bottom Line
The advent of COVID-19 has fundamentally and holistically changed the world. It’s affected everything from how we work and interact to how we school our kids. It has also profoundly affected our finances, both negatively and positively. In this time of upheaval, it pays to take a closer look at changes we might need to make to meet the new financial reality head-on. It never pays to try and ignore potential pitfalls or problems that may arise from the changing environment. The sooner we come to grips with the way that our world has fundamentally changed, the sooner we can take advantage of these changes in ways that help support our financial goals and our family’s security. Understanding and recognizing these changes is the first step, and I fully expect that these things will continue to evolve just as the virus continues to change. If we address our new financial world head-on, we’re sure to succeed.