What the COVID-19 Pandemic did, continues to do, and perhaps, will foreseeably keep doing is making life as we know it challenging.
By in large, this is evident in many aspects of our day to day lives. Whether we are looking to grab a quick bite to eat with friends, celebrate the marriage of two loved ones, grab some groceries, or just hoping to have enough money to last us until next month – things are different.
And while we recognize these sudden changes, what most Americans have had to come to grips with is that collectively, as a whole, our poor financial decisions over the last few years are only magnified during tough times like these.
That is why today, we will go over some of the financial decisions during COVID that we should all be making regardless of a pandemic!
1. Budget, budget, budget!
Enough cannot be said with the simple financial decision to live on a written budget.
While it’s not glamorous, and it is certainly not sexy, a budget is, however, vital. A budget that has all of your money properly accounted for allows you to truly assess your financial position and what you can and cannot afford.
A doctor doesn’t prescribe medicine without diagnosing a problem, and you shouldn’t think of financial decisions without first identifying where you can get better.
Instead of using an app to create a budget, use a Google Sheet or a piece of paper. Itemize all of the previous month’s expenses and income. Get an accurate picture of your spending and create new budgeting goals. Once you have your goals and new budget limits, then use an app to track your spending!
2. Save AT LEAST 20% of Your Income
For whatever reason, the financial decision to save 20% (at least) is rarely discussed anymore. This couldn’t be more evident according to American adult savings rates that show many are hardly saving at all.
Working hard to make money to pay the bills is one thing, but don’t work hard and not save for your own future. The 20% rule is a great start, and if you follow the 50-30-20 rule (which we talk about later in #3), you will be amazed at how simple it is to save your money.
Savings includes retirement accounts, general savings, investing, or in some instances – paying off debt faster.
First and foremost, if you are already saving at least 20% of your income – congratulations, you’re in rare company. On the other hand, if you’re not, don’t worry,… very few people are. And there is a straightforward solution.
Start by figuring out how much you save each month (or paying off debt if that is your goal). Hypothetically, say you bring home $3,000 per month, and you’re saving $300 each month, you would be at 10%.
Your goal is $600, or 20% of your take-home pay. To reach your goal, increase your savings rate by 1% each month for 10 months. In this example, that is just $30 a month, or hardly anything. You will get used to the adjustment each month, and before you know it, the daunting task of saving $600 will seem like a breeze!
3. Downsize Your Lifestyle
When the times are good, it’s easy to get caught up in the unique phenomenon, lifestyle creep.
Psychologically speaking, when we make more, we tend to spend more. However, this is actually the opposite of making smart financial decisions. Instead of spending more, really, we should save more!
While the practice of paying yourself is simple, what tends to occur for many is we almost always spend first, pay our bills, and then finally save or pay off debt. This is usually attributed to our lifestyle that is either too expensive or not necessary.
To see if your lifestyle could use a downsize, see if your life meets the 50-30-20 metrics:
- 50% of your money goes to bills (Housing, transportation, insurance, utilities)
- 30% of your income is discretionary
- 20% of your income is saved (or use to pay a debt)
4. Don’t Invest Emotionally.
If the 2020 Coronavirus Pandemic has made anything apparent, it is that speculative investing still occurs. In the midst of a possible recession (or even in one), stocks are going through the roof after a slight dip in March.
That being said, a lot of the investing that is occurring is very emotional. The hype surrounding individual stocks had never been so polarized. Everyone is an investor with platforms like Robinhood and WeBull. However, checking an app daily isn’t investing.
Investing is a smart idea. On average, every 10 years, smart investments double. That being said, a smart investment is a well-researched, well thought out investment. Not the emotional hype surrounding big-name stocks.
Do this instead:
Instead of getting caught up in the hype, the best financial decision is to invest conservatively, starting with an Individual Retirement Account (IRA). If you have one already, or as you get your feet wet, strive to max it out before transitioning to other investments such as ETFs and index funds.
Whatever you do, don’t look at that investing app daily; investing is a logical game – not an emotional one!
5. Always Look for Other Sources of Income
A friend’s dad always used to say, “Save when others are spending, spend when everyone else is scared and saving.”
This couldn’t be more true; however, what is occurring right now is more people are looking for ways to make extra money. Not to beat a dead horse, but preparing is always better than repairing.
It is not a bad idea to always have a few sources of income.
No matter what financial decisions during COVID you make or made, aim to improve 1% each month. Whether it is saving more money, paying off your debt, or simply learning to create more income – use COVID to become better.
Better financial decisions that we should be making regardless of pandemics and focusing on what we CAN control in life is always the right move, no matter what the times are throwing at us!